Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows:

Sales	$	6,000,000
Variable costs (50% of sales)		3,000,000
Fixed costs		1,900,000
Earnings before interest and taxes (EBIT)	$	1,100,000
Interest (10% cost)		400,000
Earnings before taxes (EBT)	$	700,000
Tax (35%)		245,000
Earnings after taxes (EAT)	$	455,000
Shares of common stock		300,000
Earnings per share	$	1.52

The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). In order to expand the facilities, Mr. Delsing estimates a need for $3.0 million in additional financing. His investment banker has laid out three plans for him to consider:

Sell $3.0 million of debt at 12 percent.

Sell $3.0 million of common stock at $20 per share.

Sell $1.50 million of debt at 11 percent and $1.50 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 $2,400,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1.50 million per year for the next five years. Delsing 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 your answers in dollars not in millions, i.e, $1,234,567.)

	Break even point
Before expansion
After expansion

b. The degree of operating leverage before and after expansion. Assume sales of $6.0 million before expansion and $7.0 million after expansion. Use the formula: DOL = (S TVC) / (S TVC FC). (Round your answers to 2 decimal places.)

	Degree of operating leverage
Before expansion
after expansion

c-1. The degree of financial leverage before expansion. (Round your answers to 2 decimal places.)

Degree of Finacial leverag

c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $7.0 million for this question. (Round your answers to 2 decimal places.)

	Degree of Financial Levarage
100% of Debt
100% of Equity
50% of debt 50% of equity

d. Compute EPS under all three methods of financing the expansion at $7.0 million in sales (first year) and $11.0 million in sales (last year). (Round your answers to 2 decimal places.)

	Earnings per share	Earnings pershare
	First Year	Last Year
100% of Debt
100% of Debt
50% debt 50% equity