Lenow's Drug Stores and Hall's Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented below. Lenow, Debit @ 10%...$100,000Common Stock, $10 par...200,000, Total... $300,000 Shares... 20,000 Hall Debit @ 10%... $200,000 Common Stock, $10 par... 100,000, Total... $300,000 Common Shares.... 10,000

a. Compute earnings per share if earnings before interest and taxes are $20,000, $30,000 and $120,000 (assume a 30 percent tax rate).

b. Explain the relationship between earnings per share and the level of EBIT.

c. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the break-even level for EBIT?