Q21.

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 @ 10* $ 108, 980 Debt @ 10% $ 208, 080 Common stock, $10 par 208, 989 Common stock, $18 par 108, 980 Total $ 309, 089 Total $ 300, 989 Common shares 20, 980 Common shares 10, 989 a. Complete the following table given earnings before interest and taxes of $20,000, $30,000, and $120,000. Assume the tax rate is 30 percent. Note: Round your answers to 2 decimal places. Leave no cells blank be certain to enter 0 wherever required. EBIT Total Assets EBIT/TA % Lenow EPS Hall EPS What is the relationship between the EPS of the two firms? S 20,000 S 300,000 S 30,000 S 300,000 120,000 S 300,000 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