Lenow’s Drug Stores and Hall’s Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented next.

a. Compute earnings per share if earnings before interest and taxes are $20,000, $30,000, and $120,000 (assume a 30 percent tax rate).

b. Explain the relationship between earnings per share and the level of EBIT.

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?

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Leno Debt @ 10% Common stock, S10 par Total Shares Hall $100.000 200,000 S300,000 20,000 Debt@ 10% Common stock, $10 par Total Common shares. $200,000 100,000 .fix. $300,00 10,000