Relationship in earnings per share and the lebel of ebit

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Reference no: EM1366461

Cain Auto Supplies and Able Auto Parts are competitors in aftermarket for auto supplies. The seperate capital structures for Cain and Able are listed below:

Debt @10%...............$50,000
Common Stock, $10 par.....100,000

Common Shares............... 10,000

Debt @ 10%......................$100,000
Common stock, $10 par...... 50,000
Common Shares............... 5,000

a) How do I compare earnings per share if earnings before interest and taxes are $10,000, $15,000, and $50,000 (assume a 30 percent tax rate).

b) How do I explain the relationship between earnings per share and the lebel of EBIT?

c) How do i explain the following: If the cost of debt went up to 12% and all other factors remained equal, what would be the break-even level for EBIT?

Reference no: EM1366461

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