Ms. Gold is in the widget business. She currently sells 1.4 million widgets a year at $5 each. Her variable cost to produce the widgets is $3 per unit, and she has $1,540,000 in fixed costs. Her sales-to-assets ratio is five times, and 20 percent of her assets are financed with 9 percent debt, with the balance financed by common stock at $10 par value per share. The tax rate is 40 percent. Her sister-in-law, Ms. Silverman, says Ms. Gold is doing it all wrong. By reducing her price to $4.50 a widget, she could increase her volume of units sold by 50 percent. Fixed costs would remain constant, and variable costs would remain $3 per unit. Her sales-to-assets ratio would be 9.0 times. Furthermore, she could increase her debt-to-assets ratio to 50 percent, with the balance in common stock. It is assumed that the interest rate would go up by 1 percent and the price of stock would remain constant. Compute earnings per share under the Gold plan. Note: Round your answer to 2 decimal places. Compute earnings per share under the Silverman plan. Note: Round your answer to 2 decimal places.
Ms. Gold is in the widget business. She currently sells 1.4 million widgets a year at $5 each. Her variable cost to produce the widgets is $3 per unit, and she has $1,540,000 in fixed costs. Her sales-to-assets ratio is five times, and 20 percent of her assets are financed with 9 percent debt, with the balance financed by common stock at $10 par value per share. The tax rate is 40 percent.
Her sister-in-law, Ms. Silverman, says Ms. Gold is doing it all wrong. By reducing her price to $4.50 a widget, she could increase her volume of units sold by 50 percent. Fixed costs would remain constant, and variable costs would remain $3 per unit. Her sales-to-assets ratio would be 9.0 times. Furthermore, she could increase her debt-to-assets ratio to 50 percent, with the balance in common stock. It is assumed that the interest rate would go up by 1 percent and the price of stock would remain constant.
- Compute earnings per share under the Gold plan.
Note: Round your answer to 2 decimal places.
- Compute earnings per share under the Silverman plan.
Note: Round your answer to 2 decimal places.
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