The Lopez-Portillo Company has $12.3 million in assets, 70 percent financed by debt, and 30 percent financed by common stock. The interest rate on the debt is 8 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $26.5 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 11 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 35 percent.

a.	If EBIT is 9 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. (Round your answers to 2 decimal places.)

	Earnings Per Share
Current	$
Plan A	$
Plan B	$

b.	What is the degree of financial leverage under each of the three plans? (Round your answers to 2 decimal places.)

	Degree Of Financial Leverage
Current
Plan A
Plan B

c.	If stock could be sold at $20 per share due to increased expectations for the firm