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		$1,500,000
Variable costs (30%)		450,000
Contribution margin		1,050,000
Fixed costs		550,000
EBIT		500,000
Interest expense		100,000
Earnings before taxes		400,000
Taxes @ 34%		136,000
Earnings after taxes		$ 264,000
Shares		100,000
EPS		$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. (Do not round the intermediate calculations. Round the final answers to 2 decimal places.)

DOL	X
DFL	X
DCL	X

b. Construct the income statement for the two financial plans. (Input all answer as positive values. Round EPS answers to 2 decimal places.)

		Debt		Equity
Sales		$		$
Less: Variable Costs (30%)
Contribution Margin
Fixed Costs
EBIT
Less: Interest
EBT
Less: Taxes @ 34%
EAT (Net Income)
Common Shares
EPS		$		$

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.)

	Debt	Equity
DOL	X	X
DFL	X	X
DCL	X	X

d. Calculate the EBIT indifference point with the formula in the chapter.

EBIT at indifference point $

e. This part of the question is not part of your Connect assignment.