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    jumpingiraffe's Avatar
    jumpingiraffe Posts: 1, Reputation: 1
    New Member
     
    #1

    Aug 25, 2005, 07:22 AM
    Capital Structure Calculations
    Please explain this problem to me:

    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
    Debt @ 10% $ 50,000
    Common Stock, $10 par $100,000
    Total $150,000
    Common Shares 10,000

    ABLE
    Debt @ 10% $100,000
    Common Stock, $10 par $ 50,000
    Total $150,000
    Common Shares 5,000

    a. Compute earnings per share if earnings before interest and taxes are $10,000, $15,000, and $50,000 (assume a 30 percnt tax rate).

    b. Explain the relationship betweem earnings per share and the level of EBIT.

    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?

    Please explain how to firgure this out. Thank you.
    kristin's Avatar
    kristin Posts: 1, Reputation: 1
    New Member
     
    #2

    Sep 14, 2005, 01:21 PM
    Can someone help answer this question?

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