Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

EBIT-EPS break-even analysis this is algebraic formulas , Home Depot Inc (HD) had 1.70 billion shares of common stock outstanding in 2008. Whereas Lowes companies

EBIT-EPS break-even analysis this is algebraic formulas , Home Depot Inc (HD) had 1.70 billion shares of common stock outstanding in 2008. Whereas Lowes companies Inc. (LOW) had 1.46 billion shares outstanding. Assuming Home Depots 2008 interest expense is $696 million, Lowes interest expense is $239 million, and a 36 percent tax rate for both firms, what is their break-even level of operating income. (i.e. the level of EBIT where EPS is the same for both firms)?

Answer: The EBIT indifference level is 2,541,083,333.

Can you please explain this ?

Slove for EBIT:

(EBIT-Interest expenseHD)x(1-taxrate) = (EBIT-Interest ExpenseLow)x (1-Tax rate)

Shares outstanding HD shares outstanding low

(EBIT-696,000,000)x(1-.36)/1,700,000,000 = (EBIT-239,000,000)x(1-.36)/1,460,000,000

So Answer is 2,541,083,333 but I need steps to explain me.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Economics Of Money Banking And Finance

Authors: Keith Bain, Peter Howells

1st Edition

0582278007, 9780582278004

More Books

Students also viewed these Finance questions