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

Sales	$	6,500,000
Less: Variable expense (50% of sales)		3,250,000
Fixed expense		1,950,000
Earnings before interest and taxes (EBIT)		1,300,000
Interest (10% cost)		500,000
Earnings before taxes (EBT)		800,000
Tax (30%)		240,000
Earnings after taxes (EAT)	$	560,000
Shares of common stock		350,000
Earnings per share	$	1.60

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 $3.5 million in additional financing. His investment banker has laid out three plans for him to consider:

1.Sell $3.5 million of debt at 11 percent.

2.Sell $3.5 million of common stock at $25 per share.

3.Sell $1.75 million of debt at 10 percent and $1.75 million of common stock at $40 per share.

Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,450,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1.75 million per year for the next five years. Delsing is interested in a thorough analysis of his expansion plans and methods of financing.

The degree of financial leverage for all three methods after expansion. Assume sales of $7.5 million for this question. (Round your answers to 2 decimal places.)

	Degree of financial leverage
100% Debt
100% Equity
50% Debt & 50% Equity