QUESTION 1 Plar Plan 2 Earnings Before Interest &Tax(EBIT) $10000 10000 Less: Interest Expense 12% 6000 Earnings Before Tax 10000 4000 ess:Tax@ 309 3000 Earnings Available for Distribution to 7000 Ord inary Shareholders No of Ordinary Shares Issued 20000 10000 Earnings Per Share(EPS) 0.35 s0.28 Plan l offers the higher EPS Plan l Plan 2 Earnings Before Interest &Tax(EBIT) $20000 20000 Less: Interest Expense 12% 6000 Earnings Before Tax Less: Tax@ 30% 6000 4200 Earnings Available for Distribution to 14000 9800 Ord inary Shareholder No of Ordinary Shares Issue 20000 10000 Earnings per Share(EPS) 0.70 s0.98 Plan 2 offers the higher EPs (X-0X1-0.3)-0(X-60004-03)-0 20000 10000 0.7X0.7X-4200 7X=14X-84000 7X=-84000 X=$12000 When EBIT= $12 000, EPS is $0. 42 under both plansSeptember 2003 QUESTION 1 a) Plan 1 Plan 2 Earnings Before Interest &Tax (EBIT) $10 000 $10 000 Less: Interest Expense @ 12% 0 6 000 Earnings Before Tax 10 000 4 000 Less: Tax @ 30% 3 000 1 200 Earnings Available for Distribution to Ordinary Shareholders 7 000 2 800  No. of Ordinary Shares Issued 20 000 10 000 Earnings Per Share (EPS) $0.35 $0.28 Plan 1 offers the higher EPS. b) Plan 1 Plan 2 Earnings Before Interest &Tax (EBIT) $20 000 $20 000 Less: Interest Expense @ 12% 0 6 000 Earnings Before Tax 20 000 14 000 Less: Tax @ 30% 6 000 4 200 Earnings Available for Distribution to Ordinary Shareholders 14 000 9 800  No. of Ordinary Shares Issued 20 000 10 000 Earnings Per Share (EPS) $0.70 $0.98 Plan 2 offers the higher EPS. c) ( )( ) ( )( ) X $12 000 - 7X - 84 000 7X 14X - 84 000 10 0.7X - 4 200 20 0.7X 10 000 X - 6 000 1- 0.3 - 0 20 000 X - 0 1- 0.3 - 0 = = = = = When EBIT = $12 000, EPS is $0.42 under both plans