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

Sales	$	7,500,000
Variable costs (50% of sales)		3,750,000
Fixed costs		2,050,000
Earnings before interest and taxes (EBIT)	$	1,700,000
Interest (10% cost)		700,000
Earnings before taxes (EBT)	$	1,000,000
Tax (35%)		350,000
Earnings after taxes (EAT)	$	650,000
Shares of common stock		450,000
Earnings per share	$	1.44

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 $4.5 million in additional financing. His investment banker has laid out three plans for him to consider:

1. Sell $4.5 million of debt at 9 percent.
2. Sell $4.5 million of common stock at $15 per share.
3. Sell $2.25 million of debt at 8 percent and $2.25 million of common stock at $20 per share.

Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,550,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $2.25 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, i.e, $1,234,567.)

b. The degree of operating leverage before and after expansion. Assume sales of $7.5 million before expansion and $8.5 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 answers to 2 decimal places.)

c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $8.5 million for this question. (Round your answers to 2 decimal places.)

d. Compute EPS under all three methods of financing the expansion at $8.5 million in sales (first year) and $10.3 million in sales (last year). (Round your answers to 2 decimal places.)

Break-Even Point Before expansion After expansion Degree of Operating Leverage Before expansion After expansion Degree of financial leverage Degree of Financial Leverage 100% Debt 100% Equity 50% Debt & 50% Equity Earnings per Share First Year Last Year 100% Debt 100% Equity 50% Debt & 50% Equity