Cain Auto Supplies and Able Auto Parts are competitors in the aftermarket for auto supplies. The separate capital structures for Cain and Able are presented below.

Cain Able

Debt @ $8\%$ $$180,000$ Debt @ $8\%$ $$360,000$

Common stock $360,000$ Common stock $180,000$

Total $$540,000$ Total $$540,000$

Common shares $36,000$ Common shares $18,000$

a$.$ Compute EPS if EBIT are $$36,000,$ $$43,200,$ and $$63,000($assume a $10$ percent tax rate$).($Round the final answers to $2$ decimal places. Do not leave any empty spaces; input a $0$ wherever it is required.$)$

Cain Able

EPS at $$36,000$ $

$

EPS at $$43,200$ $

$

EPS at $$63,000$ $

$

b$.$ What is the relationship between EPS and level of EBIT?

$1.$ Earnings before interest and taxes is less than cost of debt.

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$2.$ Earnings before interest and taxes equals cost of debt.

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$3.$ Earnings before interest and taxes is greater than cost of debt.

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c$.$ If the cost of debt went up to $10$ percent and all other factors remained equal, what would be the indifference point for EBIT?

Break$-$even level $

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