EBIT-EPS break-even analysis –this is algebraic formulas, 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, Lowe’s interest expense is $239 million, and a 36 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)?
Slove for EBIT:
(EBIT-Interest expenseHD)x(1-taxrate) = (EBIT-Interest ExpenseLow)x (1-Tax rate)
Shares outstanding HD shares outstanding low
(EBIT-696,000,000)x(1-.36)/1,700,000,000 = (EBIT-239,000,000)x(1-.36)/1,460,000,000