Answer:
a)
under plan I:
EBIT = $475,000
net income = $475,000
EPS = $475,000 / 195,000 stocks = $2.44
under plan II:
EBIT = $475,000
net income = $475,000 - ($2,900,000 x 7%) = $272,000
EPS = $272,000 / 145,000 stocks = $1.88
b)
under plan I:
EBIT = $725,000
net income = $725,000
EPS = $725,000 / 195,000 stocks = $3.72
under plan II:
EBIT = $725,000
net income = $725,000 - ($2,900,000 x 7%) = $522,000
EPS = $522,000 / 145,000 stocks = $3.60
c)
in thousands
EBIT / 195 = (EBIT - $203) / 145
145EBIT = 195EBIT - $39,585
50EBIT = $39,585
EBIT = $39,585 / 50 = $791.7 x 1,000 = $791,700
