Mr. Gold is in the widget business. He currently sells 1.4million widgets a year at $8 each. His variable cost to produce thewidgets is $6 per unit, and he has $1,650,000 in fixed costs. Hissales-to-assets ratio is eight times, and 30 percent of his assetsare financed with 7 percent debt, with the balance financed bycommon stock at $10 par value per share. The tax rate is 40percent.
  
His brother-in-law, Mr. Silverman, says he is doing it all wrong.By reducing his price to $7.50 a widget, he could increase hisvolume of units sold by 40 percent. Fixed costs would remainconstant, and variable costs would remain $6 per unit. Hissales-to-assets ratio would be 10.5 times. Furthermore, he couldincrease his debt-to-assets ratio to 50 percent, with the balancein common stock. It is assumed that the interest rate would go upby 1 percent and the price of stock would remain constant.

a. Compute earnings per share under the Goldplan. (Round your answer to 2 decimal places.)

Earnings per share_______________________________________

b. Compute earnings per share under theSilverman plan. (Round your answer to 2 decimalplaces.)
Earnings per share _________________________

C. c. Mr. Gold’s wife, the chief financialofficer, does not think that fixed costs would remain constantunder the Silverman plan but that they would go up by 20 percent.If this is the case, should Mr. Gold shift to the Silverman plan,based on earnings per share?

Yes or No