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

Sales	$	5,100,000
Variable costs (50% of sales)		2,550,000
Fixed costs		1,810,000
Earnings before interest and taxes (EBIT)	$	740,000
Interest (10% cost)		220,000
Earnings before taxes (EBT)	$	520,000
Tax (35%)		182,000
Earnings after taxes (EAT)	$	338,000
Shares of common stock		210,000
Earnings per share	$	1.61

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 $2.1 million in additional financing. His investment banker has laid out three plans for him to consider:

1. Sell $2.1 million of debt at 9 percent.

2. Sell $2.1 million of common stock at $15 per share.

3. Sell $1.05 million of debt at 10 percent and $1.05 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 $2,310,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1.05 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.)

	Break-Even Point
Before expansion
After expansion

b. The degree of operating leverage before and after expansion. Assume sales of $5.1 million before expansion and $6.1 million after expansion. Use the formula: DOL = (S TVC) / (S TVC FC). (Round your answers to 2 decimal places.)

	Degree of Operating Leverage
Before expansion
After expansion

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

Degree of financial leverage

c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $6.1 million for this question. (Round your answers to 2 decimal places.)

	Degree of Financial Leverage
100% Debt
100% Equity
50% Debt & 50% Equity

d. Compute EPS under all three methods of financing the expansion at $6.1 million in sales (first year) and $10.1 million in sales (last year). (Round your answers to 2 decimal places.)

	Earnings per Share
	First Year	Last Year
100% Debt
100% Equity
50% Debt & 50% Equity