please help with C-2 and D
Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows: Sales Variable costs (50% of sales) Fixed costs Earnings before interest and taxes (EBIT) Interest (101 cost) Earnings before taxes (EDT) Tax (300) Earnings after taxes (ET) Shares of common stock Earnings per share $6,500,000 3,250,000 1,950,000 $1,300,000 500.000 $ 800,000 240,000 560,000 350,000 1.60 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, Mr. Delsing estimates a need for $3.5 million in additional financing. His investment banker has laid out three plans for him to consider 1. Sell $3.5 million of debt at 11 percent 2. Sell $3.5 million of common stock at $25 per share. 3. Sell $175 million of debt of 10 percent and $175 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 $2,450,000 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 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.) Answer is complete and correct. Before expansion After expansion Break-Even Point s 3,900,000 $ 4,900,000 b. The degree of operating leverage before and after expansion Assume sales of $6.5 million before expansion and $7.5 million after expansion Use the formula: DOL - (S - TVO/(S-TVC - FC). (Round your answers to 2 decimal places.) Answer is complete and correct. Degree of Operating Leverage Before expansion 2.50 After expansion 2.88 c-1. The degree of financial leverage before expansion (Round your answer to 2 decimal places.) Answer is complete and correct. Degree of financial leverage 1.63 c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $7.5 million for this question, (Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Degree of Financial Leverage 100% Debt 100% Equity 50% Debt & 50% Equity 1.00 X 1.03 1.24 c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $7.5 million for this question (Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Degree of Financial Leverage 1.00 100% Debt 100% Equity 50% Debt & 50% Equity 1.63 1.24 d. Compute EPS under all three methods of financing the expansion at $7.5 million in sales (first year) and $10,4 million in sales (last year), (Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Earnings per Share Last Year 5.50 100% Debt 100% Equity 50% Debt & 50% Equity S $ $ First Year 2.60 $ 0.00 $ 7.43 0.00 10.00
