Company A and Company B both start the year 1978 with \(\$ 1\) million of shareholders' equity and 100,000 shares of common stock outstanding. During 1978 both companies earn net income of \(\$ 100,000\), a rate of return of 10 percent on shareholders' equity. Company A declares and pays \(\$ 100,000\) of dividends to common shareholders at the end of 1978 , whereas Company B retains all its earnings, declaring no dividends. During 1979, both companies earn net income equal to 10 percent of shareholders' equity at the beginning of 1979 .
a Compute earnings per share for Company A and for Company B for 1978 and for 1979.
b Compute the rate of growth in earnings per share for Company A and Company B, comparing earnings per share in 1979 with earnings per share in 1978 .
c Using the rate of growth in earnings per share as the criterion, which company's management appears to be doing a better job for its shareholders? Comment on this result.