Amsterdam Electrics Company is considering an expansion of its facilities. Its current income statement is as follows: Sales $4,000,000 Less: Variable expense (50% of sales). 2,000,000 Fixed expense 1.500.000 Earnings before interest and taxes (EBIT). 500.000 Interest (10% cost) 140.000 Earnings before taxes (EBT). 360,000 Tax (30%)...... 108.000 Earnings after taxes (EAT). S 252,000 Shares of common stock 200,000 Earnings per share... $1.26 Amsterdam Electries Company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). To expand the facilities, Mr. Amsterdam estimates a need for S2 million in additional financing. His investment banker has laid out three plans for him to consider: 1. Sell S2 million of debt at 13 percent. 2. Sell S2 million of common stock at $20 per share. 3. Sell S1 million of debt at 12 percent and S1 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 $1,900,000 per year. Mr. Amsterdam 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. Amsterdam 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 degree of operating leve. age before and after expansion. Assume sales of $4 million before expansion and $5 million after expansion. Use the formula in footnote 2 c. The degree of financial leverage before expansion at sales of S4 million and for all three methods of financing after expansion. Assume sales of $5 million for the second part of this question. d. Compute EPS under all three methods of financing the expansion at SS million in sales (first year) and $9 million in sales (last year). e. What can we learn from the answer to part d about the advisability of the three methods of financing the expansion