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 next.

Lenow		Hall
Debt @ 8%	$	300,000		Debt @ 8%	$	600,000
Common stock, $10 par		600,000		Common stock, $10 par		300,000
Total	$	900,000		Total	$	900,000
Common shares		60,000		Common shares		30,000

a.	Complete the following table given earnings before interest and taxes of $34,000, $72,000, and $89,000. Assume the tax rate is 10 percent.(Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign.Round your answers to 2 decimal places.)

EBIT	Total assets	EBIT/TA	Lenow EPS	Hall EPS	What is the relationship between the EPS of the two firms?
$ 34,000	$900,000	%	$	$	(Click to select)Lenow's EPS > Hall's EPSLenow's EPS = Hall's EPSLenow's EPS < Hall's EPS
$ 72,000	$900,000	%	$	$	(Click to select)Lenow's EPS > Hall's EPSLenow's EPS = Hall's EPSLenow's EPS < Hall's EPS
$89,000	$900,000	%	$	$	(Click to select)Lenow's EPS > Hall's EPSLenow's EPS = Hall's EPSLenow's EPS < Hall's EPS

b-1.	What is the EBIT/TA rate when the firm's have equal EPS?

EBIT/TA rate

%

b-3.	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)(Click to select)equalsexceedsis less thanthe cost of debt.