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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
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 exist10). In order to expand the facilities, Mr. Delsing estimates a need for exist2.7 million in additional financing. His investment banker has laid out three plans for him to consider: 1. Sell exist2.7 million of debt at 9 percent. 2. Sell exist2.7 million of common stock at exist25 per share 3. Sell exist1.35 million of debt at 8 percent and exist1.35 million of Common stock at exist30 per share Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to exist2, 370,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by exist1.35 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. he break-even point for operating expenses before and after expansion (in sales dollars). (Enter your answers in dollars not in millions, i e, exist1, 234, 567.) The degree of operating leverage before and after expansion. Assume sales of exist5.7 million before expansion and exist6.7 million after expansion. Use the formula: DOL - (S - TVC)/(S - TVC - FC). (Round your answers to 2 decimal places.)
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