5) Moore's Moves and Aiyuk's Jukes are in the athletic equipment business. The separate capital
structures for Moore's and Aiyuk's are below:
Moore's Moves
Aiyuk's Jukes
Debt
$125,000 Debt
$375,000
Interest Rate
9% Interest Rate
9%
Common stock, $10 par
375,000 Common stock, $10 par
125,000
Total
$500,000 Total
$500,000
Shares
37,500 Common shares
12,500
Tax Rate
28% Tax Rate
28%
a. Compute the earnings per share for both companies at EBIT levels of $20,000, $40,000
and $120,000.
b. Explain the relationship between EPS and the level of EBIT.