13. 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. Debt @ 10% Common stock Total Common shares Cain $50,000 Debt @ 10% 100,000 Common stock $150,000 Total 10,000 Common shares Able $100,000 $0,000 $150,000 $5,000 Page 159 a. Compute EPS if EBIT are $10,000, $15,000, and $50,000 (assume a 30 percent tax rate). b. Explain the relationship between EPS and level of EBIT. c. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the indifference point for EBIT?
13. 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. Debt @ 10% Common stock Total Common shares Cain $50,000 Debt @ 10% 100,000 Common stock $150,000 Total 10,000 Common shares Able $100,000 $0,000 $150,000 $5,000 Page 159 a. Compute EPS if EBIT are $10,000, $15,000, and $50,000 (assume a 30 percent tax rate). b. Explain the relationship between EPS and level of EBIT. c. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the indifference point for EBIT?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:13. 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.
Debt @ 10%
Common stock
Total
Common shares
Cain
$ 50,000 Debt @ 10%
100,000 Common stock
$150,000
Total
10,000 Common shares
Able
$100,000
$0,000
$150,000
5,000
Page 159
a. Compute EPS if EBIT are $10,000, $15,000, and $50,000 (assume a 30 percent tax rate).
b. Explain the relationship between EPS and level of EBIT.
c. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the indifference point for EBIT?
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