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What would be the break-even level for ebit

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Reference no: EM132543741

Cain Auto Supplies and Able Auto Parts are competitors in the aftermarket for auto supplies. The separate capital structures for Cain and Able are presented below.

Cai

- Debt10% .................... $ 50,000

- Common stock, $10 par 100,000

- Total .............................$150,000

- Common shares ........... 10,000

Able

- Debt10% ............ $100,000

- Com.stock,$10 par ....50,000

- Total .........................$150,000

- Common shares ............. 5,000

Question a. Compute earnings per share if earnings before interest and taxes are $10,000, $15,000, and $50,000(a 30% tax rate)

Question b. If the cost of debt went up to 12% and all other factors remained equal, what would be the break-even level for EBIT?

Reference no: EM132543741

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