Lenow’s Drug Stores and Hall’s Pharmaceuticals are competitors in the discount drug chain store

| December 12, 2017

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. LenowHall Debt @ 10%$100,000Debt @ 10%$200,000 Common stock, $10 par200,000Common stock, $10 par100,000 Total$300,000Total$300,000 Common shares20,000Common shares10,000a.Complete the following table given earnings before interest and taxes of $20,000, $30,000, and $120,000. Assume the tax rate is 30 percent.(Leave no cells blank – be certain to enter “0” wherever required. Round your answers to 2 decimal places.) EBITTotal assetsEBIT/TA Lenow EPS Hall EPSWhat is the relationship betweenthe EPS of the two firms?$ 20,000$300,000%$ $ (Click to select)Lenow’s EPS > Hall’s EPSLenow’s EPS = Hall’s EPSLenow’s EPS < Hall's EPS $ 30,000$300,000%$ $ (Click to select)Lenow's EPS > Hall’s EPSLenow’s EPS = Hall’s EPSLenow’s EPS < Hall's EPS $120,000$300,000%$ $ (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-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) (Click to select)exceedsequalsis less than the cost of debt.c.If the cost of debt went up to 12 percent and all other factors remained equal, what would be the break-even level for EBIT? Break-even level$

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