Chapter 5 i Saved Phelps Canning Company is considering an expansion of its facilities. Its current income statement is as follows: 1 Sales Less: Variable expense (50% of sales) Fixed expense $7,000,eee 3,500, eee 2,000,000 Earnings before interest and taxes (EBIT) Interest (1ex cast) 1,500,000 600,000 Earnings before taxes (EBT) Tax (40%) 909, eee 360.ece Book Earnings after taxes (EAT) $540, eee Shares of common stock EDS 400,000 $1.35 erences 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 $4.0 million in additional financing His Investment dealer has laid out three plans for him to consider 1. Sell $4.0 million of debt at 10 percent. 2. Sell $4.0 million of common stock at $20 per share 3. Sell $2.00 million of debt at 9 percent and $2.00 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 $2,500,000 per year Mr. Phelps is not sure how much this expansion will add to sales, but he estimates that sales will rise by $2.00 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). (Enter the answers in dollars not in millions.) Break-even point 3 Before expansion After expansion 5 Prey 1 of 4 1 Next > a. The break-even point for operating expenses before and after expansion (in sales dollars). (Enter the answers in dollars not in millions.) Break-even point $ Before expansion After expansion $ b. The DOL before and after expansion. Assume sales of $7.0 million before expansion and $8.0 million after expansion (Round the final answers to 2 decimal places.) DOL Before expansion After expansion X C-1. The DFL before expansion at sales of $70 million (Round the final answers to 2 decimal places.) DFL ces c-2. The DFL for all three methods after expansion. Assume sales of $8.0 million. (Round the final answers to 2 decimal places.) DFL X 180% Debt 180% Equity Sex Debt & 50% Equity d. Compute EPS under all three methods of financing the expansion at $8.0 million in sales (first year and $10.9 million in sales (last year). (Round the final answers to 2 decimal places.) EPS First year > Last year $ 100 Debt 100% Equity Sex Debt & 50% Equity