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?