Mr. Gold is in the widget business. He currently sells 1.5 million widgets a year at
35 percent.
His brother-in-law, Mr. Silverman, says he is doing it all wrong. By reducing his price to
a. Compute earnings per share under the Gold plan.
b. Compute earnings per share under the Silverman plan.
c. Mr. Gold’s wife, the chief financial officer, does not think that fixed costs would remain constant under the Silverman plan but that they would go up by 15 percent. If this is the case, should Mr. Gold shift to the Silverman plan, based on earnings per share?
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Foundations of Financial Management
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