# A compute the earnings before interest and taxes ebit

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a. Compute the earnings before interest and taxes (EBIT) for each level of sales.
b. Compute the earnings per share (ESP) for each level of sales, the expected EPS, the standard deviation of the EPS, and the coefficient of variation of EPS, assuming that there are 10,000 shares of common stock outstanding.
Standard deviation of ESP is = \$1.14 Coefficient of variation of ESP: Coefficient of variation is: 6.32 c. Tower has the opportunity to reduce its leverage to zero nad pay no interest. This change will require that the number of shares outstanding be increased to 15,000. Repeat part b under this assumption. =√([ (−\$1.62−\$0.18) ^2 0.20]+[ ? (\$0.18−\$0.18) ^2 0.60]+[ ? (\$1.98−\$0.18 ???? =√((3.2 0.20)+0+(\$3.2 0.20)) 4? 4? ???? =√(\$0.648+0+0.648=\$1.296) ???? =√(\$1.296=\$1.138) ?? = _??? / ) ???? (???????? ??? ?? =1.138/0.18=6.3222=6.32 _???
Coefficient of variation is: 1.29 d. Compare you findings os part b and c, and comment on the effect of the reduction of dept to zero on the firm's financial risk. ?? =\$0.772/0.60=1.2866 _???
at 70%: \$200,000x0.7=\$140,000 at 70%: \$300,000x0.7=\$210,000 at 70%: \$400,000x0.7=\$280,000 n: \$27,000 x 0.4 = \$10,800) n: \$3,000 x 0.4 = \$1,200) n: \$33,000 x 0.4 = \$13,200 on: -\$16,200 : 10,000 = -\$1.62 on: \$1,800 : 10,000 =\$0.18 on: -\$19,800 : 10,000 = \$1.98
8) ^2 0.20] ) ? ^2 0.20] ) ?
P14-4 Dividend constraints The Howe Company's stockholder's equity account follows: Common stock (400,000 shares at \$4 par) \$1,600,000 Paid-in capital at excess of par 1,000,000 Retained earnings 1,900,000 Total stockholder's equity \$4,500,000 The earnings available for common stockholders from this period's operations are \$100,000, which have been included as part of the \$1.9 million retained earnings.