Homework Help is Here – Start Your Trial Now!
Business
Accounting
b-1 What is the EBIT/TA rate when the firm's have equal EPS? EBIT/TA rate b-2. What is the cost of debt? Cost of debt % b-3. State the relationship between earnings per share and the level of EBIT EPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA) Break-even level the cost of debt c. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the break-even level for EBIT?

b-1 What is the EBIT/TA rate when the firm's have equal EPS? EBIT/TA rate b-2. What is the cost of debt? Cost of debt % b-3. State the relationship between earnings per share and the level of EBIT EPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA) Break-even level the cost of debt c. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the break-even level for EBIT?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

33.

Subject :- Accounting 

 

b-1 What is the EBIT/TA rate when the firm's have equal EPS? EBIT/TA rate b-2. What is the cost of debt? Cost of debt % b-3. State the relationship between earnings per share and the level of EBIT EPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA) c. If the cost of debt went up to 12 percent and all other factors remained i Break-even level the cost of debt what would be the break-even level for EBIT?
Transcribed Image Text:b-1 What is the EBIT/TA rate when the firm's have equal EPS? EBIT/TA rate b-2. What is the cost of debt? Cost of debt % b-3. State the relationship between earnings per share and the level of EBIT EPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA) c. If the cost of debt went up to 12 percent and all other factors remained i Break-even level the cost of debt what would be the break-even level for EBIT?
Lenow Drug Stores and Hall Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented here. Lenow Debt @ 10% Common stock, $10 par Total Common shares Total Assets S 20,000 $ 300,000 S 30,000 $ 300,000 $ 120,000 $ 300,000 $ 100,000 200,000 $ 300,000 20,000 EBIT a. Complete the following table given earnings before interest and taxes of $20,000, $30,000, and $120,000. Assume the tax rate is Note: Round your answers to 2 decimal places. Leave no cells blank be certain to enter O wherever required. 30 percent Hall Debt @ 10% Common stock, $10 par Total Common shares EBIT/TA% Lenow EPS % % % $ 200,000 100,000 $ 300,000 10,000 Hall EPS What is the relationship between the EPS of the two firms? 4
Transcribed Image Text:Lenow Drug Stores and Hall Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented here. Lenow Debt @ 10% Common stock, $10 par Total Common shares Total Assets S 20,000 $ 300,000 S 30,000 $ 300,000 $ 120,000 $ 300,000 $ 100,000 200,000 $ 300,000 20,000 EBIT a. Complete the following table given earnings before interest and taxes of $20,000, $30,000, and $120,000. Assume the tax rate is Note: Round your answers to 2 decimal places. Leave no cells blank be certain to enter O wherever required. 30 percent Hall Debt @ 10% Common stock, $10 par Total Common shares EBIT/TA% Lenow EPS % % % $ 200,000 100,000 $ 300,000 10,000 Hall EPS What is the relationship between the EPS of the two firms? 4
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 3 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS