Delsing Canning Company is considering an expansion of its facilities.

Its current income statement is as follows:

Sales $ 6,800,000

Variable costs (50% of sales) 3,400,000

Fixed costs 1,980,000

Earnings before interest and taxes (EBIT) $ 1,420,000

Interest (10% cost) 560,000

Earnings before taxes (EBT) $ 860,000

Tax (30%) 258,000

Earnings after taxes (EAT) $ 602,000

Shares of common stock 380,000

Earnings per share $ 1.58

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 $3.8 million in additional financing.

His investment banker has laid out three plans for him to consider:

Sell $3.8 million of debt at 14 percent.

Sell $3.8 million of common stock at $20 per share.

Sell $1.90 million of debt at 13 percent and $1.90 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 $2,480,000 per year.

Delsing 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.

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.)

b. The degree of operating leverage before and after expansion. Assume sales of $6.8 million before expansion and $7.8 million after expansion. Use the formula: DOL = (S TVC) / (S TVC FC). (Round your answers to 2 decimal places.)

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

c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $7.8 million for this question. (Round your answers to 2 decimal places.)

d. Compute EPS under all three methods of financing the expansion at $7.8 million in sales (first year) and $10.7 million in sales (last year). (Round your answers to 2 decimal places.)