EBITEPS breakeven analysisHome Depot Inc HD had 170 billion

(EBIT-EPS break-even analysis)Home Depot, Inc. (HD) had 1.70 billion shares of common stock outstanding in 2008, whereas Lowes Companies, Inc. (LOW) had 1.46 billion shares outstanding. Assuming Home Depot\'s 2008 interest expense is $696 million, Lowes\' interest expense is $239 million, and a 40 percent tax rate for both firms, what is their break-even level of operating income (i.e., the level of EBIT where EPS is the same for both firms)? Round to the nearest Dollar

Solution

To find the break-even level of EBIT

EPS for Home Depot EPS for Lowes companies

EBIT-Interest Expense_{HD) *(1-tax rate)}     EBIT-Interest Expense_low (1-tax rate)/shares os_low

/shares outsatndng _HD

(EBIT-$696,000,000*)(1-0.40)/1,700,000,000) =(EBIT-$239,000,000)(1-0.40)/1,460,000,000)

(EBIT-$696,000,000*)0.8588=(EBIT-$239,000,000)

0.8588EBIT-597741176.5=EBIT-$239,000,000

(1-0.8588)EBIT=239,000,000-597741176.5

EBIT= $2,541,083,333

Solving for the EBIT indilference level yrelds $2,541,083,333. This is the level at which both Home Depo! Inc. and Lowes Companies, Inc. have the same earning per share