Lenows Drug Stores and Halls 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%	$	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. (Negative amounts should be indicated by parentheses or 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
72,000	900,000
89,000	900,000

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

b-2. What is the cost of debt? Cost of debt ________%

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) _______ the cost of debt.

c. 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: