Answer:
All equity plan (12,000 shares with an EPS of $2.40)
Explanation:
<u>Plan A (10,000 shares):</u>
interest = $90,000 x 10% = $9,000
net income = (ebit - interest) x (1 - 40%) = ($48,000 - $9,000) x 60% = $23,400
earnings per share (EPS) = $23,400 / 10,000 shares = $2.34 per share
<u>Plan B (7,600 shares):</u>
interest = $198,000 x 10% = $19,800
net income = (ebit - interest) x (1 - 40%) = ($48,000 - $19,800) x 60% = $16,920
earnings per share (EPS) = $16,920 / 7,600 shares = $2.23 per share
<u>All equity plan (12,000 shares):</u>
net income = ebit x (1 - 40%) = $48,000 x 60% = $28,800
earnings per share (EPS) = $28,800 / 12,000 shares = $2.40 per share
