DeSoto Tools, Inc. is planning to expand production. The expansion will cost $300,000, which can either be financed by bonds at an interest rate of 14 percent or by selling 10,000 shares of common stock at $30 per share. The current income statement before expansion is as follows: DESOTO TOOLS, INC. Income Statement Year Ended Dec. 31, 20XX Sales Variable costs (30%) $1,500,000 450,000 Contribution margin Fixed costs 1,050,000 550,000 EBIT Interest expense 500,000 100,000 Earnings before taxes Taxes @ 34% 400,000 136,000 Earnings after taxes $ 264,000 Shares EPS 100,000 $2.64 After the expansion, sales are expected to increase by $1,000,000. Variable costs will remain at 30 percent of sales, and fixed costs will increase to $800,000. The tax rate is 34 percent. a. Calculate the DOL, the DFL, and the DCL before expansion. b. Construct the income statement for the two financial plans. (Input all answer as positive values. Round EPS answers to 2 decimal places.) Sales Less: Variable Costs (30%) Debt $ 250000C 750000 Equity $ 2500000 750000 Contribution Margin Fixed Costs 1750000 800000 1750000 800000 EBIT Less: Interest 950000 142000 950000 100000 EBT Less: Taxes @ 34% 808000 274720 850000 289000 EAT (Net Income) Common Shares EPS 533280 100000 533 $ 561000 110000 51 c. Calculate the DOL, the DFL, and the DCL, after expansion, for the two financing plans. (Do not round the intermediate calculations. Round the final answers to 2 decimal places.) DOL DEL DCL Debt 1.84 X 217 3.99 X Equi 1.84 206 3.79 d. Calculate the EBIT indifference point with the formula in the chapter. EBIT at indifference point 562 e. This part of the question is not part of your Connect assignment.