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    EBIT-EPS analysis

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    Leno Drug Store and Hall Drug store are competitors in the discount drug chain business. Two separate capital structures.
    Leno
    Debt @ 10% $100,000
    Common Stock, $10 par $200,000
    Total $300,000
    Shares 20,000

    Hall
    Debt @ 10% $200,000
    Common Stock, $10 par $100,000
    Total $300,000
    Shares 10,000

    Requirements: Show step-by-step and correct calculation with the formulas for the following.
    a. Compute earnings per share if earning before interest and taxes are $20,000, $30,000 and $120,000
    b. Explain the relationship between earnings per share and the level of EBIT.
    c. If the cost of debt went up to 12% and all other facts remained equal, what would be the break-even level for EBIT?

    Required: Show step-by-step and correct calculation with the formulas.

    © BrainMass Inc. brainmass.com June 3, 2020, 7:21 pm ad1c9bdddf
    https://brainmass.com/business/accounting/ebit-eps-analysis-94733

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    Solution Summary

    Calculates EPS at different EBIT levels. Calculates the break-even level for EBIT.

    $2.19

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