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Need help on how Can I solve question 1 a) and b) about Break even point and DOL Variable costs are expected to stay at

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Need help on how Can I solve question 1 a) and b) about Break even point and DOL

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Variable costs are expected to stay at 50 percent of sales, while xed expenses will increase to $2,370,000 per year. Mr. Phelps is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1.35 million per year for the next ve years. Mr. Phelps is interested in a thorough analysis of his expansion plans and methods of nancing. He would like you to analyze the following: a. The breakeven point for operating expenses before and after expansion (in sales dollars}. {Enter the answers in dollars not in millions: Breakeven paint Before expansion 5 After expansion 5 b. The DOL before and after expansion. Assume sales of $5.7 million before expansion and $6.7 million after expansion. [Round the nal answers to 2 decimal places} DOL Before expansion X After expansion X Problem 5-23 Phelps Canning Company is considering an expansion of its facilities. Its current income statement is as follows: 'IO 90mm Sales 15,730,339 Less: Variable expense (50% of sales) 2,850,888 SkiPPEd Fixed expense 1,870,888 Earnings before interest and taxes (EBIT) 980,888 Interest (10% cost) 340,888 Prlnt References Earnings before taxes (EST) 640,888 Tax (35%) 224,888 Earnings after taxes (EAT) $416,888 Shares of common stock 270,888 EPS $1.54 Phelps Canning Company is currently nanced with 50 percent debt and 50 percent equity (common stock). To expand facilities, Mr. Phelps estimates a need for $27 million in additional nancing. His investment dealer has laid out three plans for him to consider: 1. Sell $2? million of debt at 9 percent. 2. Sell $2? million of common stock at $25 per share. Mt. . Elm\" 1 n; 1 ll! Mmrl

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