19. Phelps Canning Company is considering an expansion of its facilities. Its current income statement is as follows: $5,000,000 2,500,000 1.800,000 700,000 200,000 500,000 170,000 $ 330,000 200,000 $1.65 Sales . ._ _ _ . . Less: Variable expense (50% of sales) Fixed expense. Earnings before interest and taxes (EBIT) Earnings before taxes (EBT) Tax (34%). Earnings after taxes (EAT) Shares of common stock.... EPS . Phelps Canning Company is currently financed with 50 percent debt and 50 percent equity (common stock). To expand facilities, Mr. Phelps estimates a need for $2 million in additional financing. His investment dealer has laid out three plans for him to consider: 1. Sell $2 million of debt at 13 percent. 2. Sell $2 million of common stock at $20 per share. 3. Sell $1 million of debt at 12 percent and $1 million of common stock at $25 per share Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,300,000 per year. Mr. Phelps is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1 million per year for the next five years Mr. Phelps is interested in a thorough analysis of his expansion plans and methods of financing. He would like you to analyze the following: a. The break-even point for operating expenses before and after expansion (in sales dollars). b. The DOL before and after expansion. Assume sales of $5 million before expansion and $6 million after expansion