2. Hubball Resources has the following capital structure:

Debt @ 8% ............................................................................ $300,000 Common stock, $10 par (shares 50,000).............................. 500,000 Total.................................................................................... $800,000

a. Compute earnings per share if earnings before interest and taxes is $64,000.
(Assume a 20 percent tax rate.)

b. Assume debt goes up by $200,000, common stock goes down by $200,000, and the interest rate on the new debt is 10 percent. The tax rate remains at 20 percent. The par value on the common stock is still $10. Compute earnings per share if earnings before interest and taxes is $80,000.