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w rences 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 @9% Common stock Total Common shares Cain $100,000 200,000 $300,000 20,000 EPS at $20,000 EPS at $27,000 EPS at $55,000 S $ Debt @9% Common stock Cain Total Common shares a. Compute EPS if EBIT are $20,000, $27,000, and $55,000 (assume a 20 percent tax rate). (Round the final answers to 2 decimal places. Do not leave any empty spaces; input a 0 wherever it is required.) $ Able Able b. What is the relationship between EPS and level of EBIT? $200,000 100,000 $300,000 10,000 1. Earnings before interest and taxes is less than cost of debt. 2. Earnings before interest and taxes equals cost of debt. 3. Earnings before interest and taxes is greater than cost of debt. (Click to select) (Click to select) (Click to select) c. If the cost of debt went up to 11 percent and all other factors remained equal, what would be the indifference point for EBIT? Break-even level w rences 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 @9% Common stock Total Common shares Cain $100,000 200,000 $300,000 20,000 EPS at $20,000 EPS at $27,000 EPS at $55,000 S $ Debt @9% Common stock Cain Total Common shares a. Compute EPS if EBIT are $20,000, $27,000, and $55,000 (assume a 20 percent tax rate). (Round the final answers to 2 decimal places. Do not leave any empty spaces; input a 0 wherever it is required.) $ Able Able b. What is the relationship between EPS and level of EBIT? $200,000 100,000 $300,000 10,000 1. Earnings before interest and taxes is less than cost of debt. 2. Earnings before interest and taxes equals cost of debt. 3. Earnings before interest and taxes is greater than cost of debt. (Click to select) (Click to select) (Click to select) c. If the cost of debt went up to 11 percent and all other factors remained equal, what would be the indifference point for EBIT? Break-even level
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Answer Cain EBIT 20000 27000 55000 Interest 9 x 100000 9000 9000 9000 EBT 11000 18000 46000 ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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