Lenow’s Drug Stores and Hall’s Pharmaceuticals are competitors in the discount drug chain store business. The...

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Finance

Lenow’s Drug Stores and Hall’s Pharmaceuticals are competitorsin the discount drug chain store business. The separate capitalstructures for Lenow and Hall are presented here.
Lenow Hall
Debt @ 10% $ 110,000 Debt @ 10% $ 220,000
Common stock, $10 par 220,000 Common stock, $10 par 110,000
Total $ 330,000 Total $ 330,000
Common shares 22,000 Common shares 11,000
a. Complete the following table given earningsbefore interest and taxes of $15,000, $33,000, and $56,000. Assumethe tax rate is 30 percent. (Negative amounts should beindicated by parentheses or a minus sign. Roundyour answers to 2 decimal places.)


b-1. What is the EBIT/TA rate when the firm's haveequal EPS?


b-2. What is the cost of debt?


b-3. State the relationship between earnings pershare and the level of EBIT.


c. If the cost of debt went up to 12 percent andall other factors remained equal, what would be the break-evenlevel for EBIT?

rev: 02_14_2018_QC_CS-118192

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Lenow’s Drug Stores and Hall’s Pharmaceuticals are competitorsin the discount drug chain store business. The separate capitalstructures for Lenow and Hall are presented here.LenowHallDebt @ 10%$110,000Debt @ 10%$220,000Common stock, $10 par220,000Common stock, $10 par110,000Total$330,000Total$330,000Common shares22,000Common shares11,000a. Complete the following table given earningsbefore interest and taxes of $15,000, $33,000, and $56,000. Assumethe tax rate is 30 percent. (Negative amounts should beindicated by parentheses or a minus sign. Roundyour answers to 2 decimal places.) b-1. What is the EBIT/TA rate when the firm's haveequal EPS? b-2. What is the cost of debt? b-3. State the relationship between earnings pershare and the level of EBIT. c. If the cost of debt went up to 12 percent andall other factors remained equal, what would be the break-evenlevel for EBIT? rev: 02_14_2018_QC_CS-118192

Lenow			Hall
Debt @ 10%	$	110,000	Debt @ 10%	$	220,000
Common stock, $10 par		220,000	Common stock, $10 par		110,000
Total	$	330,000	Total	$	330,000
Common shares		22,000	Common shares		11,000