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

Sales$5,600,000Variable costs (50% of sales)2,800,000Fixed costs1,860,000Earnings before interest and taxes (EBIT)$940,000Interest (10% cost)320,000Earnings before taxes (EBT)$620,000Tax (30%)186,000Earnings after taxes (EAT)$434,000Shares of common stock260,000Earnings per share$1.67

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 $2.6 million in additional financing. His investment banker has laid out three plans for him to consider:

1. Sell $2.6 million of debt at 14 percent.
2. Sell $2.6 million of common stock at $20 per share.
3. Sell $1.30 million of debt at 13 percent and $1.30 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 $2,360,000 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 in dollars not in millions, i.e, $1,234,567.)

b.The degree of operating leverage before and after expansion. Assume sales of $5.6 million before expansion and $6.6 million after expansion. Use the formula: DOL = (STVC) / (STVC FC).(Round to 2 decimal places.)

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

c-2.The degree of financial leverage for all three methods after expansion. Assume sales of $6.6 million for this question.(Round to 2 decimal places.)

d.Compute EPS under all three methods of financing the expansion at $6.6 million in sales (first year) and $10.6 million in sales (last year).(Round to 2 decimal places.)