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. Cain Able Debt @ 10% $50,000 Debt @ 10% $100,000 Common stock 100,000 Common stock 50,000 Total $150,000 Total $150,000 Common shares 10,000 Common shares 5,000 a. Compute EPS if EBIT are $10,000, $15,000, and $50,000 (assume a 30 percent tax rate). (Round the final answers to 2 decimal places. Do not leave any empty spaces; input a 0 wherever it is required.) Cain Able EPS at $10,000 $ $ EPS at $15,000 $ $ EPS at $50,000 $ $ b. What is the relationship between EPS and level of EBIT? 1. Earnings before interest and taxes is less than cost of debt. (Click to select) 2. Earnings before interest and taxes equals cost of debt. (Click to select) 3. Earnings before interest and taxes is greater than cost of debt. (Click to select) 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? Break-even level $
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. Cain Able Debt @ 10% $50,000 Debt @ 10% $100,000 Common stock 100,000 Common stock 50,000 Total $150,000 Total $150,000 Common shares 10,000 Common shares 5,000 a. Compute EPS if EBIT are $10,000, $15,000, and $50,000 (assume a 30 percent tax rate). (Round the final answers to 2 decimal places. Do not leave any empty spaces; input a 0 wherever it is required.) Cain Able EPS at $10,000 $ $ EPS at $15,000 $ $ EPS at $50,000 $ $ b. What is the relationship between EPS and level of EBIT? 1. Earnings before interest and taxes is less than cost of debt. (Click to select) 2. Earnings before interest and taxes equals cost of debt. (Click to select) 3. Earnings before interest and taxes is greater than cost of debt. (Click to select) 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? Break-even level $
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