Lenow’s Drug Stores and Hall’s Pharmaceuticals are competitors in the discount d
ID: 2423993 • Letter: L
Question
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.
Complete the following table given earnings before interest and taxes of $14,000, $21,600, and $54,000. Assume the tax rate is 10 percent. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
What is the relationship between the EPS
of the two firms?
Lenow Hall Debt @ 8% $ 90,000 Debt @ 8% $ 180,000 Common stock, $10 par 180,000 Common stock, $10 par 90,000 Total $ 270,000 Total $ 270,000 Common shares 18,000 Common shares 9,000Explanation / Answer
(14000-90000*8%)/18000
= (14000-7200)/18000
= 0.38
(14000-180000*8%)/9000
= (14000-14400)/9000
= -0.044
= (21600-7200)/18000
= 0.80
=(21600-14400)/9000
= 0.80
= (54000- 7200)/18000
= 2.60
= (54000-14400)/9000
= 4.40
EBIT TOTAL ASSETS EBIT/TA LENOW _ EPS HALL_EPS Relationship 14000 270000 0.0519(14000-90000*8%)/18000
= (14000-7200)/18000
= 0.38
(14000-180000*8%)/9000
= (14000-14400)/9000
= -0.044
Lenow's EPS > Hall's EPS 21600 270000 0.08= (21600-7200)/18000
= 0.80
=(21600-14400)/9000
= 0.80
Lenow's EPS = Hall's EPS 54000 270000 0.20= (54000- 7200)/18000
= 2.60
= (54000-14400)/9000
= 4.40
Lenow's EPS < Hall's EPSRelated Questions
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