Subject: Accounting

For part B the options for question 1, 2 and 3 are the following

Able does better

Both are at equililbrium

Cain does better

Cain Auto Supplies and Able Auto Parts are competitors in the aftermarket for auto supplies. The separate capital structures for Cain and Able are presented below. Cain Able Debt @ 9% Common stock $250,000 500,000 Debt @ 9% Common stock $500,000 250,000 Total $750,000 Total $750,000 Common shares 50,000 Common shares 25,000 a. Compute EPS if EBIT are $50,000, $67,500, and $70,000 (assume a 20 percent tax rate). (Round the final answers to 2 decimal places. Do not leave any empty spaces; input a O wherever it is required.) Cain Able EPS at $50,000 EPS at $67,500 EPS at $70,000 $ $ $ $ $ $ b. What is the relationship between EPS and level of EBIT? 1. Earnings before interest and taxes is less than cost of debt. 2. Earnings before interest and taxes equals cost of debt. 3. Earnings before interest and taxes is greater than cost of debt. (Click to select) (Click to select) (Click to select) c. If the cost of debt went up to 11 percent and all other factors remained equal, what would be the indifference point for EBIT