Neptune and Saturn are competitors in the scientific toy industry. Neptune has been manufacturing educational toys for the last 50 years, and been through many economic cycles. As a result, Neptune management is regarded as conservative with respect to leverage. Management knows how difficult business gets when consumer spending slows. Their main competitor, Saturn, on the other hand, is a new entrant to the toy market and has grown sales rapidly mainly through acquiring smaller companies. As a result of this acquisition strategy, Saturn has acquired a lot more debt over the last few years. Below are the capital structures of the two toy companies: Neptune Saturn Debt @8% $120,000 Debt @8% $240.000 Common Stock 240,000 Common Stock 120,000 TOTAL 360,000 TOTAL 360,000 Common Shares 24.000 12.000 Questions: a) Compute EPS if EBIT are $24,000, $28,800, and $57,000 (assume a 10% tax rate). Use the template below for EACH EBIT level. b) Discuss the relationship between EPS and the level of EBIT, with respect to the cost of debt. Explain when Neptune would outperform Saturn, and when Saturn would outperform Neptune. c) If the cost of debt increased to 10%, and all other factors remained constant, what would be the indifference point for EBIT? TEMPLATE for Part A - must be completed for each EBIT level Neptune Saturn EBIT Interest EBT Taxes EAT Shares EPS