Question 19 (6 points) You are the Chief Financial Officer of Elrond. You receive a bonus based on basic earnings per share. You are unhappy that your 2020 bonus was lower than expected and are looking to see what Elrond could have done differently with respect to the mix of shareholder distributions to increase basic earnings per share in 2020. The following information is in respect of 2020: . . . Net income of $250,000. Tax rate of 20% Depreciation and amortization expense of $50,000 Debt balance: $550,000 . Interest rate on debt: 5% Dividends declared: $100,000 Common shares outstanding: 125,000 shares (no repurchases or issuances occurred during 2020) Share price on January 1, 2020: $25 per share Share price on December 31, 2020: $30 per share Average 2020 share price: $26 per share Basic earnings per share: $2.00 (e.g. $250,000 / 125,000 shares) O . Aveidge ZUZU Silale price. P20 pEi sildie Basic earnings per share: $2.00 (e.g. $250,000 / 125,000 shares) Constraints Elrond must operate within constraints to keep its board of directors, shareholders and creditors happy as follows: . Any change in total shareholder distributions must be funded by debt (i.e. borrow money or, repay existing debt) While Elrond has not repurchased shares in the past, the company is permitted to do so. At a minimum, Elrond's must pay out 20% of EBITDA as a dividend. Elrond's maximum debt to EBITDA is 2.5 times Required (show your work): Given the constraints provided, determine the maximum basic earnings per share Elrond could have reported in 2020. (6 marks)