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

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 $2.5 million in additional financing. His investment banker has laid out three plans for him to consider:

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 $2.5 million in additional financing. His investment banker has laid out three plans for him to consider:

2. Sell $2.5 million of common stock at $20 per share.

3. Sell $1.25 million of debt at 12 percent and $1.25 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 $2,350,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1.25 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.)

B. The degree of operating leverage before and after expansion. Assume sales of $5.5 million before expansion and $6.5 million after expansion. Use the formula in footnote 2 of the chapter. (Enter only numeric values rounded to 2 decimal places.)

C-1. The degree of financial leverage before expansion. (Enter only numeric value rounded to 2 decimal places.)

C-2. The degree of financial leverage for all three methods after expansion. Assume sales of $6.5 million for this question. (Enter only numeric values rounded to 2 decimal places.)

D. Compute EPS under all three methods of financing the expansion at $6.5 million in sales (first year) and $10.5 million in sales (last year). (Round your answers to 2 decimal places.)

Sales $ 5,500,000 2,750,000 Less: Variable expense (50% of sales) Fixed expense 1,850,000 900,000 Earnings before interest and taxes (EBIT) Interest (10% cost) 300,000 Earnings before taxes (EBT) Tax (40%) 600,000 240,000 $ Earnings after taxes (EAT) Shares of common stock Earnings per share 360,000 250,000 1.44 $ All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Input variables: O percent $0 Sales Variable costs Variable costs/Sales Fixed costs EBIT Interest Interest rate % EBT Taxes Tax rate EAT Shares of common stock EPS 9 10 percent $0 0 percent $0 $0.00 percent o percent $0 percent $0 Debt/Assets % Equity/Assets % Par value per share Additional financing Plan 1: New debt Plan 1: Interest rate on debt Plan 2: New equity Plan 2: Price per share Plan 3: New debt Plan 3: Interest rate on debt Plan 3: New equity Plan 3: Price per share Plan 1, 2, and 3: New fixed costs Plan 1,2, and 3: Sales increase b. Pre-expansion sales b. Post-expansion sales d. Sales first year d. Sales last year percent per year for years