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help!!! Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows: The company is currently financed with 50
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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 debt and 50 percent equity (common stock. par value of $10). In order to expand the facilities, Mc. Delsing estimates a need for $3.6 million in additional financing. His investment banker has laid out three plans for him to consider: 1. Sell $3.6 million of debt at 12 percent. 2. Sell $3.6 million of common stock at $30 per share. 3. Sell $1.80 million of debt at 11 percent and $1.80 million of common stock at $40 per share. Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,460,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1 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. b. The degree of operating leverage before and after expansion. Assume sales of $6.6 million before expansion and $7.6millian after exponsion. Use the formula: DOL=(STVO)/(STVCFC). (Round your answers to 2 decimal places.) c-1. The degree of financial leverage before expansion, (Round your answer to 2 decimal places.) c-2. The degree of financial leverpge for ali three methods after expansion. Assume sales of $7.6 million for this question. (Round your answers to 2 decimal places.) d. Compute EPS under all three methods of finencing the expansion at $7.6 million in sales (first year) and $10.5 million in sales (last year). (Round your answers to 2 decimal places.) Step by Step Solution
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