46. Leverage Analysis: Your employer has decided to purchase a new manufacturing line. The new line will generate an additional $3,000,000 of operating income annually and will cost $50,000,000. You are trying to decide if the line should be financed with debt or with equity. The company currently has $60,000,000 of debt (borrowing rate is 8%) and $30,000,000 of equity. (Part #1) Complete the income statement below (shaded region, including the two ratios at the bottom of the table. (Part #2) Recommend one of the two financing options and DEFEND your decision with sound reasoning in the white space below. New manufacturing line cost: Additional annual Operating Profit: Financing Alternatives: Interest Expense is 8% Tax rate is 25% $50,000,000 $3,000,000 $50,000,000 loan or 1,000,000 shares of common stock (7 pts) PART #1 Financed 100% with Equity 260,000,000 208,000,000 52,000,000 Before New Line 200,000,000 160,000,000 40,000,000 30,000,000 10,000,000 4,800,000 5,200,000 1,300,000 3,900,000 Financed 100% with Debt 260,000,000 208,000,000 52,000,000 39,000,000 13,000,000 Sales COGS Gross Profit Operating Expenses Operating Profit Interest Expense Income Tax Expense (25%) Net Income 39,000,000 13,000,000 Times Int. Earned EPS (1,000,000 shares) 2.08 3.90 Part #2: Which financing (debt or equity) do you choose and WHY