Answer:
A. EPS for plan 1 is $1.29 and EPS for plan 2 is $1.15
B. EPS for plan 1 is $2.90 and EPS for plan 2 is $3.53
C. Break even EBIT is $247,380 and EPS = $1.60
Explanation:
EPS = Earnings per share = Earnings before tax (EBT) divided by outstanding common stock.
A.
Plan 1
EPS = 200,000 divided by 155,000 = $1.29 per share.
Plan 2
EPS = (EBIT - interest ) all divided by common stock
EPS = ($200,000 - ($1,330,000 x 6%)) / 105,000
= $1.15 per share
B.
Plan 1
EPS = 450,000 divided by 155,000 = $2.90 per share.
Plan 2
EPS = (EBIT - interest ) all divided by common stock
EPS = ($450,000 - ($1,330,000 x 6%)) / 105,000
= $3.53 per share
C.
Break even EBIT is when
EPS (plan 1) = EPS (plan 2)
If we represent the EBIT with ?
? / 155,000 = (? - ($1,330,000 x 6%)) / 105,000
? = $247,380
EPS = $1.60
