Delsing Canning Company is considering an expansion of its facilities Its current income statement is as follows Sales$5,800,000Variable costs (50 of sales)2,900,000Fixed costs1,880,000Earnings before interest and taxes (EBIT)$1,020,000Interest (10 cost)360,000Earnings before taxes (EBT)$660,000Tax (40 )264,000Earnings after taxes (EAT)$396,000Shares of common stock280,000Earnings per share$1 41 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 $2 8 million in additional financing His investment banker has laid out three plans for him to consider Sell $2 8 million of debt at 10 percent Sell $2 8 million of common stock at $20 per share Sell $1 40 million of debt at 9 percent and $1 40 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 $2,380,000 per year Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1 40 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)

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Posted on Jun 07, 2024

Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows: Sales$5,800,000Variable costs (50% of sales)2,900,000Fixed costs1,880,000Earnings before interest

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

Sales$5,800,000Variable costs (50% of sales)2,900,000Fixed costs1,880,000Earnings before interest and taxes (EBIT)$1,020,000Interest (10% cost)360,000Earnings before taxes (EBT)$660,000Tax (40%)264,000Earnings after taxes (EAT)$396,000Shares of common stock280,000Earnings per share$1.41

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 $2.8 million in additional financing. His investment banker has laid out three plans for him to consider:

Sell $2.8 million of debt at 10 percent.
Sell $2.8 million of common stock at $20 per share.
Sell $1.40 million of debt at 9 percent and $1.40 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 $2,380,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1.40 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).