Lenow Drug Stores and Hall Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented here.

Lenow				Hall
Debt @ 8%	$	180,000		Debt @ 8%	$	360,000
Common stock, $10 par		360,000		Common stock, $10 par		180,000
Total	$	540,000		Total	$	540,000
Common shares		36,000		Common shares		18,000

a. Complete the following table given earnings before interest and taxes of $22,000, $43,200, and $63,000. Assume the tax rate is 10 percent. (Negative amounts should be indicated by parentheses or a minus sign. Round your answers to 2 decimal places.)

						What is the relationship between
EBIT	Total Assets	EBIT/TA	%	Lenow EPS	Hall EPS	the EPS of the two firms?
$22,000	$540,000		%
$43,200	$540,000		%
$63,000	$540,000		%

What is the EBIT/TA rate when the firm's have equal EPS?

EBIT/TA rate

%

Cost of debt

%

State the relationship between earnings per share and the level of EBIT.

EPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA)

the cost of debt.

If the cost of debt went up to 10 percent and all other factors remained equal, what would be the break-even level for EBIT?

Break-even level