Sam Jones is the president of Apollo Finance,a payday lender.The company's proxy statement contains the following description of Mr.Jones' pay package.
Mr.Jones is eligible for an annual incentive bonus equal to 1% of Net Income of the company and is eligible for an additional bonus based upon annual increases in EPS only after earnings exceed 15% over the prior year.The additional bonus is determined as follows:

Assume no change in the number of shares of outstanding stock during the year.
Required:
a.Suppose that Apollo Finance had $75 million of Net Income for the year.How much of a bonus would Mr.Jones receive if the EPS increase for the year was 12%?
b.Suppose that Apollo Finance had $75 million of Net Income for the year.How much of a bonus would Mr.Jones receive if the EPS increase for the year was 28%?

a.According to the bonus formula,Mr.Jones would receive a bonus of $750,000 if the company reports net income of $75 million and the EPS increase is 12 percent.
Basic bonus = 1% of $75 million = $750,000
Additional bonus = zero
b.According to the bonus formula,Mr.Jones would receive a bonus of $1,242,188 if the company reports net after-tax earnings of $75 million and the EPS increase is 28 percent.
Basic bonus = 1% of $75 million = $750,000
Additional bonus = 3% of $16,406,250 = $492,188
Since the company has not issued or repurchased stock during the year,a 28% increase in EPS must also mean that net income increased 28%.In other words $75 million = (1 + .28)× earnings last year.So,earnings last year must equal $75 million ÷ (1.28)or $58,593,750.The increase in net income would then be $16,406,250 = ($75 million - $58,593,750).