DeSoto Tools Inc. is planning to expand production. The expansion will cost $3,300,000, which can be financed either by bonds at an interest rate of 8 percent or by selling 66,000 shares of common stock at $50 per share. The current income statement before expansion is as follows: DeSoto Tools Inc. Income Statonent 20X1 Sales. Variablo costs Foxnd costs Earnings before interest and taxes Interest expense Earnings before taxes Taxes @ 30% Earnings after taxes Shares Earnings per share $3,130,000 1,252,000 1,065.000 530,000 s 535,000 160,500 S 374,500 230.000 S 1.63 After the expansion, sales are expected to increase by $1,630,000. Variable costs will remain at 20 percent of sales, and fixed costs will increase to $1,376,000. The tax rate is 30 percent. a. Calculate the degree of operating leverage, the degree of financial leverage, and the degree of combined leverage before expansion. (For the degree of operating leverage, use the formula: DOL(S TVC) (S-TVC FC) For the degree of combined leverage, use the formula: DCL(S-TVC) (S- TVC- FC-). These instructions apply throughout this problem.) (Round your answers to 2 decimal placos.) Degree of operating leverage Dogroo of financial loverage Degree of combined b. Construct the income statement for the two alternative financing plans. (Round EPS to 2 decimal places.) Debt Equity oosta xed costs before interest and taxes before taxes Earnings after taxes Common shares Earnings per share