Chapter 5 Problem 27 Odling Canning Company is considering in of its facilisis current income is follows 5 LewVariable pense of all Fundos 5.500.000 2.750,000 1.450,000 Earnings before interest and taxes Interest (no cast) 300.000 300,000 Earnings before Tu (40 600,000 240,000 Earning after a EAT Shares of common stock Earnings per share 360,000 250,000 5 The company is currently faced with 50 percent debt and so percent equity common stock par ut of 10 in order to spend the facilities, M. Delinestimates a need for $2.5 million in additional financing is vestment bankas hastad out three plans for him to consider 1. Sell $2.5 million of debt at 13 percent. 2. Se $2.5 million of common och at $20 per share 3. Se 1.25 milion of debat 12 percent and $1.25 million of common stock $25 per we Variable costs are expected to stay at so percent ofules, while and experts will increase to $2,250,000 per year, Deling is not sure how much this apansion will add to sales, but he estimates that sales will rise by 51 25 million per year for the neat free Deling is intented in a thorough analysis of his expansion plans and methods of financing He would like you to analyze the following: The break even point for operatingueres before and repair in dollar inter your answers in dollars not in million) The degree of operating leverage before and after pansion, une fillon before opanion and 56.5 million after expansion. Use the formula in footnote 2 of the chapter only untere values rounded to 2 decimal places The degree of financial leverage before expansion inter only numeric value rounded to decima places) 2 The degree of finano leverage for all the methods after expansion. Ainunews of 56.5 million for this question, der lynner values rounded to 2 decimal places) 310.5 milion in sales and wound your answers to 2 decimal places) 42 Allut alue me how in yellow. Owly these values need changed to review go versions Anwer wedisplayed in red 50 51 52 Input variables ON/DI percent 54 55 56 57 58 59 Sales Variable costs Variable costSales Feed costs EBIT Interest Interest rate ENT Ta Texte EAT Shares of common stock EPS 868 10 percent DIVO! percent 61 62 63 66 65 OG so POIVOI 67 68 percent 100 percent 70 71 72 so percent So 74 75 76 77 Det/ Equity/Aut Par value per she Additional financing Plan 1: New det Plan interest rate on debt Plan 21w equity Plan 2: Price per share Plan 3. New debt Plan 3: Interest rate on debt Plan New equity Plan 3:Price per share Plan 1, 2 and 3: New feed CORE Plan 1.2, and sales increase b. Pre-expansion sale b. Post-expansion sale d. See year percent 0 29 ED per year for Vers 83 84 86 Solution and Explanation Prepansion Postension Sales 88 89 90 91 92 93 94 Pre expansion Post expansion DOL 16 97 DOL 0-1. DOL 0 31 All det $0 All equity So 50N/SON 50 Sales Variable costs Fixed costs EBIT 50 $0 50 23 04 25 26 07 08 09 10 Interest on old debt Interest on new debt SO 50 $0 Total interest $0 $0 50 DRL 32 23 14 15 16 17 11 19 20 21 d. Sales NI debt All equity SON/SON EBIT Interest EBT Taxes $0 $0 $0 EAT $0 $0 50 Total shares EPS Not NI SON/SON 23 24 -25 126 127 128 129 330 31 132 333 234 335 136 132 138 139 140 141 142 Sales Variable costs Fred Costs 50 $0 BIT Interest 50 ERT 50 $0 $0 EAT $0 $0 $0 Totalheres EPS 144 145 146 147 148 149