Problem 5-27 Expansion, break-even analysis, and leverage (LO5-2,5-3,5-4] 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 $ 5,200,000 2,600,000 1,820,000 $ 780,000 240,000 $ 540,000 216,000 $ 324,000 220,000 $ 1.47 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 $2.2 million in additional financing. His investment banker has laid out three plans for him to consider: 1. Sell $2.2 million of debt at 10 percent. 2. Sell $2.2 million of common stock at $20 per share. 3. Sell $1.10 million of debt at 9 percent and $1.10 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 $2,320,000 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.) Break-Even Point Before expansion After expansion b. The degree of operating leverage before and after expansion. Assume sales of $5.2 million before expansion and $6.2 million after expansion. Use the formula: DOL = (S-TVO/(S-TVC - FC). (Round your answers to 2 decimal places.) Degree of Operating Leverage Before expansion After expansion c-1. The degree of financial leverage before expansion. (Round your answer to 2 decimal places.) Degree of financial leverage c.2. The degree of financial leverage for all three methods after expansion. Assume sales of $6.2 million for this question. (Round your answers to 2 decimal places.) Degree of Financial Leverage 100% Debt 100% Equity 50% Debt & 50% Equity d. Compute EPS under all three methods of financing the expansion at $6.2 million in sales (first year) and $10.2 million in sales (last year). (Round your answers to 2 decimal places.) Earnings per Share First Year Last Year 100% Debt 100% Equity 50% Debt & 50% Equity