### Relationship in earnings per share and the lebel of ebit

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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:

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

Total................................\$150,000
Common Shares............... 10,000

ABLE
Debt @ 10%......................\$100,000
Common stock, \$10 par...... 50,000
Total.................................\$150,000
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?

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