Using the financial statements above, determine the following:

a)Rosebushscurrent degree of operating leverage (DOL).

b)Rosebushs current degree of financial leverage (DFL).

c)The impact of a 15%decrease in sales would have on EPS(in %).

Show your work.

d)Rosebush is considering expanding at a cost of $250,000. In order to finance the expansion, Rosebush has been presented with the following options:

Option #1: Finance the $250,000expansion with new bonds. The bonds will have a call feature so will be riskier than the companys current debt; they will have a coupon rate of 9.5%.

Option #2: Finance the $250,000expansion with new common shares at $10 per share.

i.Calculate the level of EBIT that will produce the same EPS under both plans.

ii.What level of EPS corresponds to this level of EBIT.

iii.If EBIT is expected to be $175,000, which plan would maximize EPS? Explain. iv.Should the plan selected in part (iii) be unconditionally chose nor should other factors be considered in selecting the financing option? Explain.

Rosebush Flowers Inc. Balance Sheet Liabilities Assets Cash A/R Invento $69,921 Accounts Payable 52,818 Accrued Liabilities $31,333 $18,667 $137,661 Long Term Debt (8% coupon,semiannual pmts $100,000 Net Property, Plant and Equipemer $139,600 $1000 par, 15 years to maturity) Preferred Shares (Par $50, dividend 7%) $50,000 Common Stock (44,000 shares outstanding) Retained Earnings $100,000 $100,000 Total Assets $400,000 Total Liabilities & Owers Equit $400,000 Rosebush Flowers Inc. Income Statement Sales Cost of Goods Sold Gross Margin $739,100 $494,100 Fixed Costs Depreciation Earnings before interest and taxes Interest Earnings before taxes Taxes (35%) Net Income $320,000 $6,000 $168,100 $8,000 $160,100 $56,035 $104,065 Dividends -Preferred $3,500