Please see attachment and answer all questions. 17 questions

1. At the end of January, Mineral Labs had an inventory of 955 units, which cost $12 per unit to produce. During February, the company produced 1,800 units at a cost of $16 per unit. a. If the firm sold 2,650 units in February, what was the cost of goods sold? (Assume LIFO inventory accounting.) b. If the firm sold 2,650 units in February, what was the cost of goods sold? (Assume FIFO inventory accounting.) 2. Convex Mechanical Supplies produces a product with the following costs as of July 1, 20X1: Material Labor Overhead $5 3 2 $ 10 Beginning inventory at these costs on July 1 was 10,300 units. From July 1 to December 1, Convex produced 24,000 units. These units had a material cost of $7 per unit. The costs for labor and overhead were the same. Convex uses FIFO inventory accounting. a. Assuming that Convex sold 26,000 units during the last six months of the year at $14 each, what would gross profit be? b. What is the value of ending inventory? 3. The Bradley Corporation produces a product with the following costs as of July 1, 20X1: Material Labor Overhead $3 per unit 3 per unit 1 per unit Beginning inventory at these costs on July 1 was 3,350 units. From July 1 to December 1, 20X1, Bradley produced 12,700 units. These units had a material cost of $2, labor of $4, and overhead of $2 per unit. Bradley uses LIFO inventory accounting. a. Assuming that Bradley sold 14,400 units during the last six months of the year at $13 each, what is its gross profit? b. What is the value of ending inventory? 4. Watt's Lighting Stores made the following sales projection for the next six months. All sales are credit sales. March April May $51,000 June 57,000 July 46,000 August $55,000 63,000 65,000 Sales in January and February were $54,000 and $53,000, respectively. Experience has shown that of total sales, 10 percent are uncollectible, 25 percent are collected in the month of sale, 35 percent are collected in the following month, and 30 percent are collected two months after sale. a. Prepare a monthly cash receipts schedule for the firm for March through August. 5. The Volt Battery Company has forecast its sales in units as follows: January February March April 3,300 3,150 3,100 3,600 May June July 3,850 4,000 3,700 Volt Battery always keeps an ending inventory equal to 110% of the next month's expected sales. The ending inventory for December (January's beginning inventory) is 3,460 units, which is consistent with this policy. Materials cost $10 per unit and are paid for in the month after purchase. Labor cost is $3 per unit and is paid in the month the cost is incurred. Overhead costs are $18,500 per month. Interest of $10,500 is scheduled to be paid in March, and employee bonuses of $15,700 will be paid in June. a. Prepare a monthly production schedule for January through June. b. Prepare a monthly summary of cash payments for January through June. Volt produced 3,100 units in December. 6. Harry's Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecasted sales figures: Actual November $520,000 December 540,000 Forecast January $600,000 February 640,000 March 510,000 Additional Information April forecast $500,000 Of the firm's sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 50 percent are paid in the month after sale and 50 percent are paid in the second month after the sale. Materials cost 40 percent of sales and are purchased and received each month in an amount sufficient to cover the following month's expected sales. Materials are paid for in the month after they are received. Labor expense is 30 percent of sales and is paid for in the month of sales. Selling and administrative expense is 20 percent of sales and is also paid in the month of sales. Overhead expense is $36,000 in cash per month. Depreciation expense is $11,600 per month. Taxes of $9,600 will be paid in January, and dividends of $10,000 will be paid in March. Cash at the beginning of January is $112,000, and the minimum desired cash balance is $107,000. a. Prepare a schedule of monthly cash receipts for January, February, and March. b. Prepare a schedule of monthly cash payments for January, February, and March. c. Prepare a monthly cash budget with borrowings and repayments for January, February, and March. (Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.) 7. The Manning Company has financial statements as shown next, which are representative of the company's historical average. The firm is expecting a 40 percent increase in sales next year, and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales. Income Statement Sales Expenses Earnings before interest and taxes Interest Earnings before taxes Taxes Earnings after taxes $300,000 246,800 $ 53,200 9,100 $ 44,100 17,100 $ 27,000 Dividends $ Assets Cash Accounts receivable Inventory Current assets Fixed assets $ 9,000 56,000 70,000 $ 135,000 86,000 Total assets $ 221,000 5,400 Balance Sheet Liabilities and Stockholders' Equity Accounts payable Accrued wages Accrued taxes Current liabilities Notes payable Long-term debt Common stock Retained earnings Total liabilities and stockholders' equity Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do not round intermediate calculations.) 8. The Hartnett Corporation manufactures baseball bats with Pudge Rodriguez's autograph stamped on them. Each bat sells for $37 and has a variable cost of $20. There are $31,450 in fixed costs involved in the production process. a. Compute the break-even point in units. b. Find the sales (in units) needed to earn a profit of $15,555. 9. $ 29,000 2,250 4,750 $ 36,000 9,100 25,500 125,000 25,400 $221,000 Eaton Tool Company has fixed costs of $243,600, sells its units for $64, and has variable costs of $35 per unit. a. Compute the break-even point. b. Ms. Eaton comes up with a new plan to cut fixed costs to $190,000. However, more labor will now be required, which will increase variable costs per unit to $38. The sales price will remain at $64. What is the new break-even point? (Round your answer to the nearest whole number.) c. Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)? Profitability will be less Profitability will be more 10. Healthy Foods Inc. sells 50-pound bags of grapes to the military for $16 a bag. The fixed costs of this operation are $90,000, while the variable costs of grapes are $.20 per pound. a. What is the break-even point in bags? b. Calculate the profit or loss (EBIT) on 12,000 bags and on 34,000 bags. c. What is the degree of operating leverage at 20,000 bags and at 34,000 bags? (Round your answers to 2 decimal places.) d. If Healthy Foods has an annual interest expense of $13,000, calculate the degree of financial leverage at both 20,000 and 34,000 bags. (Round your answers to 2 decimal places.) e. What is the degree of combined leverage at both 20,000 and 34,000 bags? (Round your answers to 2 decimal places.) 11. International Data Systems' information on revenue and costs is relevant only up to a sales volume of 122,000 units. After 122,000 units, the market becomes saturated and the price per unit falls from $12.00 to $7.80. Also, there are cost overruns at a production volume of over 122,000 units, and variable cost per unit goes up from $6.00 to $6.50. Fixed costs remain the same at $72,000. a. Compute operating income at 122,000 units. b. Compute operating income at 222,000 units. 12. Lenow's Drug Stores and Hall's Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented here. Lenow Debt @ 8% Common stock, $10 par Total Common shares $ 120,000 240,000 $ 360,000 24,000 Hall Debt @ 8% Common stock, $10 par Total Common shares $240,000 120,000 $360,000 12,000 a. Complete the following table given earnings before interest and taxes of $16,000, $28,800, and $57,000. Assume the tax rate is 10 percent. (Negative amounts should be indicated by parentheses or a minus sign. Round your answers to 2 decimal places.) b-1. What is the EBIT/TA rate when the firm's have equal EPS? b-2. What is the cost of debt? b-3. State the relationship between earnings per share and the level of EBIT. c. If the cost of debt went up to 10 percent and all other factors remained equal, what would be the break-even level for EBIT? 13. Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $129,600. The separate capital structures for Sterling and Royal are shown here: Sterling Debt @ 9% Common stock, $5 par Total Common shares $ 864,000 576,000 $1,440,000 115,200 Royal Debt @ 9% Common stock, $5 par Total Common shares $ 288,000 1,152,000 $1,440,000 230,400 a. Compute earnings per share for both firms. Assume a 20 percent tax rate. (Round your answers to 2 decimal places.) b. In part a, you should have gotten the same answer for both companies' earnings per share. Assuming a P/E ratio of 18 for each company, what would its stock price be? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Now as part of your analysis, assume the P/E ratio would be 12 for the riskier company in terms of heavy debt utilization in the capital structure and 23 for the less risky company. What would the stock prices for the two firms be under these assumptions? (Note: Although interest rates also would likely be different based on risk, we will hold them constant for ease of analysis.) (Do not round intermediate calculations. Round your answers to 2 decimal places.) 14. Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows: Sinclair Capital Structure Debt @ 11% Common stock, $10 per share Total Common shares Operating Plan: Sales (67,000 units at $20 each) Variable costs Fixed costs Earnings before interest and taxes (EBIT) Boswell $1,620,000 1,080,000 $2,700,000 0 $2,700,000 $2,700,000 108,000 270,000 $1,340,000 1,072,000 0 $ 268,000 $1,340,000 670,000 317,000 $ 353,000 The variable costs for Sinclair are $16 per unit compared to $10 per unit for Boswell. a. If you combine Sinclair's capital structure with Boswell's operating plan, what is the degree of combined leverage? (Round your answer to 2 decimal places.) b. If you combine Boswell's capital structure with Sinclair's operating plan, what is the degree of combined leverage? (Round your answer to the nearest whole number.) c. In part b, if sales double, by what percentage will earnings per share (EPS) increase? (Round your answer to the nearest whole percent.) 15. Dickinson Company has $12,140,000 million in assets. Currently half of these assets are financed with long-term debt at 10.7 percent and half with common stock having a par value of $8. Ms. Smith, Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 10.7 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. Under Plan D, a $3,035,000 million long-term bond would be sold at an interest rate of 12.7 percent and 379,375 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 379,375 shares of stock would be sold at $8 per share and the $3,035,000 in proceeds would be used to reduce long-term debt. a. How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.) b-1. Compute the earnings per share if return on assets fell to 5.35 percent. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) b-2. Which plan would be most favorable if return on assets fell to 5.35 percent? Consider the current plan and the two new plans. Current Plan Plan E Plan D b-3. Compute the earnings per share if return on assets increased to 15.7 percent. (Round your answers to 2 decimal places.) b-4. Which plan would be most favorable if return on assets increased to 15.7 percent? Consider the current plan and the two new plans. Plan E Current Plan Plan D c-1. If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assume that $3,035,000 million in debt will be used to retire stock in Plan D and $3,035,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 10.7 percent. (Round your answers to 2 decimal places.) c-2. If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive? Current Plan Plan D Plan E 16. The Lopez-Portillo Company has $11.8 million in assets, 80 percent financed by debt and 20 percent financed by common stock. The interest rate on the debt is 14 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $24 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 17 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 40 percent. a. If EBIT is 15 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. (Round your answers to 2 decimal places.) b. What is the degree of financial leverage under each of the three plans? (Round your answers to 2 decimal places.) c. If stock could be sold at $20 per share due to increased expectations for the firm's sales and earnings, what impact would this have on earnings per share for the two expansion alternatives? Compute earnings per share for each. (Round your answers to 2 decimal places.) 17. 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 $ 7,000,000 3,500,000 2,000,000 Earnings before interest and taxes (EBIT) Interest (10% cost) Earnings before taxes (EBT) Tax (40%) Earnings after taxes (EAT) Shares of common stock Earnings per share $ $ 1,500,000 600,000 900,000 360,000 540,000 $ 400,000 1.35 $ 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 $4.0 million in additional financing. His investment banker has laid out three plans for him to consider: 1. Sell $4.0 million of debt at 10 percent. 2. Sell $4.0 million of common stock at $20 per share. 3. Sell $2.00 million of debt at 9 percent and $2.00 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 $2,500,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $2.00 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 $7.0 million before expansion and $8.0 million after expansion. Use the formula: DOL = (S TVC) / (S TVC FC). (Round your answers to 2 decimal places.) c-1. The degree of financial leverage before expansion. (Round your answers to 2 decimal places.) c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $8.0 million for this question. (Round your answers to 2 decimal places.) d. Compute EPS under all three methods of financing the expansion at $8.0 million in sales (first year) and $10.9 million in sales (last year). (Round your answers to 2 decimal places.) 4. Watt's Lighting Stores made the following sales projection for the next six months. All sales are credit sales. March April May $51,000 June 57,000 July 46,000 August $55,000 63,000 65,000 Sales in January and February were $54,000 and $53,000, respectively. Experience has shown that of total sales, 10 percent are uncollectible, 25 percent are collected in the month of sale, 35 percent are collected in the following month, and 30 percent are collected two months after sale. a. Prepare a monthly cash receipts schedule for the firm for March through August. 5. The Volt Battery Company has forecast its sales in units as follows: January February March April 3,300 3,150 3,100 3,600 May June July 3,850 4,000 3,700 Volt Battery always keeps an ending inventory equal to 110% of the next month's expected sales. The ending inventory for December (January's beginning inventory) is 3,460 units, which is consistent with this policy. Materials cost $10 per unit and are paid for in the month after purchase. Labor cost is $3 per unit and is paid in the month the cost is incurred. Overhead costs are $18,500 per month. Interest of $10,500 is scheduled to be paid in March, and employee bonuses of $15,700 will be paid in June. a. Prepare a monthly production schedule for January through June. b. Prepare a monthly summary of cash payments for January through June. Volt produced 3,100 units in December. 6. Harry's Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecasted sales figures: Actual November $520,000 December 540,000 Forecast January $600,000 February 640,000 March 510,000 Additional Information April forecast $500,000 Of the firm's sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 50 percent are paid in the month after sale and 50 percent are paid in the second month after the sale. Materials cost 40 percent of sales and are purchased and received each month in an amount sufficient to cover the following month's expected sales. Materials are paid for in the month after they are received. Labor expense is 30 percent of sales and is paid for in the month of sales. Selling and administrative expense is 20 percent of sales and is also paid in the month of sales. Overhead expense is $36,000 in cash per month. Depreciation expense is $11,600 per month. Taxes of $9,600 will be paid in January, and dividends of $10,000 will be paid in March. Cash at the beginning of January is $112,000, and the minimum desired cash balance is $107,000. a. Prepare a schedule of monthly cash receipts for January, February, and March. b. Prepare a schedule of monthly cash payments for January, February, and March. c. Prepare a monthly cash budget with borrowings and repayments for January, February, and March. (Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.) 7. The Manning Company has financial statements as shown next, which are representative of the company's historical average. The firm is expecting a 40 percent increase in sales next year, and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales. Income Statement Sales Expenses Earnings before interest and taxes Interest Earnings before taxes Taxes $300,000 246,800 $ 53,200 9,100 $ 44,100 17,100 Earnings after taxes $ 27,000 Dividends $ Assets Cash Accounts receivable Inventory Current assets Fixed assets $ 9,000 56,000 70,000 $ 135,000 86,000 Total assets $ 221,000 5,400 Balance Sheet Liabilities and Stockholders' Equity Accounts payable Accrued wages Accrued taxes Current liabilities Notes payable Long-term debt Common stock Retained earnings Total liabilities and stockholders' equity Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do not round intermediate calculations.) 10. Healthy Foods Inc. sells 50-pound bags of grapes to the military for $16 a bag. The fixed costs of this operation are $90,000, while the variable costs of grapes are $.20 per pound. a. What is the break-even point in bags? b. Calculate the profit or loss (EBIT) on 12,000 bags and on 34,000 bags. c. What is the degree of operating leverage at 20,000 bags and at 34,000 bags? (Round your answers to 2 decimal places.) d. If Healthy Foods has an annual interest expense of $13,000, calculate the degree of financial leverage at both 20,000 and 34,000 bags. (Round your answers to 2 decimal places.) e. What is the degree of combined leverage at both 20,000 and 34,000 bags? (Round your answers to 2 decimal places.) 12. $ 29,000 2,250 4,750 $ 36,000 9,100 25,500 125,000 25,400 $221,000 Lenow's Drug Stores and Hall's Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented here. Lenow Debt @ 8% Common stock, $10 par Total Common shares $ 120,000 240,000 $ 360,000 24,000 Hall Debt @ 8% Common stock, $10 par Total Common shares $240,000 120,000 $360,000 12,000 a. Complete the following table given earnings before interest and taxes of $16,000, $28,800, and $57,000. Assume the tax rate is 10 percent. (Negative amounts should be indicated by parentheses or a minus sign. Round your answers to 2 decimal places.) b-1. What is the EBIT/TA rate when the firm's have equal EPS? b-2. What is the cost of debt? b-3. State the relationship between earnings per share and the level of EBIT. c. If the cost of debt went up to 10 percent and all other factors remained equal, what would be the break-even level for EBIT? 13. Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $129,600. The separate capital structures for Sterling and Royal are shown here: Sterling Debt @ 9% Common stock, $5 par Total Common shares $ 864,000 576,000 $1,440,000 115,200 Royal Debt @ 9% Common stock, $5 par Total Common shares $ 288,000 1,152,000 $1,440,000 230,400 a. Compute earnings per share for both firms. Assume a 20 percent tax rate. (Round your answers to 2 decimal places.) b. In part a, you should have gotten the same answer for both companies' earnings per share. Assuming a P/E ratio of 18 for each company, what would its stock price be? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Now as part of your analysis, assume the P/E ratio would be 12 for the riskier company in terms of heavy debt utilization in the capital structure and 23 for the less risky company. What would the stock prices for the two firms be under these assumptions? (Note: Although interest rates also would likely be different based on risk, we will hold them constant for ease of analysis.) (Do not round intermediate calculations. Round your answers to 2 decimal places.) 14. Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows: Sinclair Capital Structure Debt @ 11% Common stock, $10 per share Total Common shares Operating Plan: Sales (67,000 units at $20 each) Variable costs Fixed costs Earnings before interest and taxes (EBIT) Boswell $1,620,000 1,080,000 $2,700,000 0 $2,700,000 $2,700,000 108,000 270,000 $1,340,000 1,072,000 0 $ 268,000 $1,340,000 670,000 317,000 $ 353,000 The variable costs for Sinclair are $16 per unit compared to $10 per unit for Boswell. a. If you combine Sinclair's capital structure with Boswell's operating plan, what is the degree of combined leverage? (Round your answer to 2 decimal places.) b. If you combine Boswell's capital structure with Sinclair's operating plan, what is the degree of combined leverage? (Round your answer to the nearest whole number.) c. In part b, if sales double, by what percentage will earnings per share (EPS) increase? (Round your answer to the nearest whole percent.) 15. Dickinson Company has $12,140,000 million in assets. Currently half of these assets are financed with long-term debt at 10.7 percent and half with common stock having a par value of $8. Ms. Smith, Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 10.7 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. Under Plan D, a $3,035,000 million long-term bond would be sold at an interest rate of 12.7 percent and 379,375 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 379,375 shares of stock would be sold at $8 per share and the $3,035,000 in proceeds would be used to reduce long-term debt. a. How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.) b-1. Compute the earnings per share if return on assets fell to 5.35 percent. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) b-2. Which plan would be most favorable if return on assets fell to 5.35 percent? Consider the current plan and the two new plans. Current Plan Plan E Plan D b-3. Compute the earnings per share if return on assets increased to 15.7 percent. (Round your answers to 2 decimal places.) b-4. Which plan would be most favorable if return on assets increased to 15.7 percent? Consider the current plan and the two new plans. Plan E Current Plan Plan D c-1. If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assume that $3,035,000 million in debt will be used to retire stock in Plan D and $3,035,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 10.7 percent. (Round your answers to 2 decimal places.) c-2. If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive? Current Plan Plan D Plan E 16. The Lopez-Portillo Company has $11.8 million in assets, 80 percent financed by debt and 20 percent financed by common stock. The interest rate on the debt is 14 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $24 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 17 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 40 percent. a. If EBIT is 15 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. (Round your answers to 2 decimal places.) b. What is the degree of financial leverage under each of the three plans? (Round your answers to 2 decimal places.) c. If stock could be sold at $20 per share due to increased expectations for the firm's sales and earnings, what impact would this have on earnings per share for the two expansion alternatives? Compute earnings per share for each. (Round your answers to 2 decimal places.) 17. 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 (10% cost) Earnings before taxes (EBT) Tax (40%) Earnings after taxes (EAT) Shares of common stock Earnings per share $ $ 7,000,000 3,500,000 2,000,000 1,500,000 600,000 900,000 360,000 540,000 $ 400,000 1.35 $ $ 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 $4.0 million in additional financing. His investment banker has laid out three plans for him to consider: 1. Sell $4.0 million of debt at 10 percent. 2. Sell $4.0 million of common stock at $20 per share. 3. Sell $2.00 million of debt at 9 percent and $2.00 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 $2,500,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $2.00 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 $7.0 million before expansion and $8.0 million after expansion. Use the formula: DOL = (S TVC) / (S TVC FC). (Round your answers to 2 decimal places.) c-1. The degree of financial leverage before expansion. (Round your answers to 2 decimal places.) c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $8.0 million for this question. (Round your answers to 2 decimal places.) d. Compute EPS under all three methods of financing the expansion at $8.0 million in sales (first year) and $10.9 million in sales (last year). (Round your answers to 2 decimal places.)