Phelps Canning Company is considering an expansion of its facilities. Its current income statement is as follows: Sales Less: Variable expense (50% of sales) Fixed expense $5,800,000 2,900,000 1,880,000 Earnings before interest and taxes (EBIT) Interest (10% cost) 1,020,000 360,000 Earnings before taxes (EBT) Tax (40%) 660,000 264,000 Earnings after taxes (EAT) $396,000 Shares of common stock EPS 280,000 $1.41 Phelps Canning Company is currently financed with 50 percent debt and 50 percent equity (common stock). To expand facilities, Mr. Phelps estimates a need for $2.8 million in additional financing. His investment dealer has laid out three plans for him to consider: 1. Sell $2.8 million of debt at 10 percent. 2. Sell $2.8 million of common stock at $20 per share. 3. Sell $1.40 million of debt at 9 percent and $1.40 million of common stock at $25 per share. Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,380,000 per year. Mr. Phelps is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1.40 million per year for the next five years. Mr. Phelps 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 the answers in dollars not in millions.) Before expansion After expansion Break-ever point S S in b. The DOL before and after expansion. Assume sales of $5.8 million before expansion and $6.8 million after expansion. (Round the final answers to 2 decimal places.) DOL Before expansion After expansion X c-1. The DFL before expansion at sales of $5.8 million. (Round the final answers to 2 decimal places.) DFL X c-1. The DFL before expansion at sales of $5.8 million. (Round the final answers to 2 decimal places.) DFL X c-2. The DFL for all three methods after expansion. Assume sales of $6.8 million (Round the final answers to 2 decimal places.) DFL 100% Debt 100% Equity 50% Debt & 50% Equity X d. Compute EPS under all three methods of financing the expansion at $6.8 million in sales (first year) and $10.8 million in sales (last year). (Round the final answers to 2 decimal places.) First year S Last year s EPS 100% Debt 100% Equity 50% Debt & 50% Equity