Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as...

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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 (30%) Earnings after taxes (EAT) Shares of common stock Earnings per share $ 6,200,000 3,100,000 1,920,000 $ 1,180,000 440,000 $ 740,000 222,000 $ 518,000 320,000 $ 1.62 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 $3.2 million in additional financing. His investment banker has laid out three plans for him to consider: 1. Sell $3.2 million of debt at 14 percent. 2. Sell $3.2 million of common stock at $20 per share. 3. Sell $1.60 million of debt at 13 percent and $1.60 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 $2,420,000 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). Note: Enter your answers in dollars not in millions, i.e, $1,234,567. Break-Even Point Before expansion After expansion $ $ 3,840,000 4,840,000 b. The degree of operating leverage before and after expansion. Assume sales of $6.2 million before expansion and $7.2 million after (S-TVC) expansion. Use the formula: DOL = (S-TVC-FC) Note: Round your answers to 2 decimal places. Degree of Operating Leverage Before expansion After expansion 2.62 3.05 c-1. The degree of financial leverage before expansion. Note: Round your answer to 2 decimal places. Degree of financial leverage 1.60 c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $7.2 million for this question. Note: Round your answers to 2 decimal places. 100% Debt 100% Equity 50% Debt & 50% Equity Degree of Financial Leverage 4.04 1.59 2.22 d. Compute EPS under all three methods of financing the expansion at $7.2 million in sales (first year) and $10.1 million in sales (last year). Note: Round your answers to 2 decimal places. 100% Debt 100% Equity 50% Debt & 50% Equity Earnings per Share First Year Last Year 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 (30%) Earnings after taxes (EAT) Shares of common stock Earnings per share $ 6,200,000 3,100,000 1,920,000 $ 1,180,000 440,000 $ 740,000 222,000 $ 518,000 320,000 $ 1.62 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 $3.2 million in additional financing. His investment banker has laid out three plans for him to consider: 1. Sell $3.2 million of debt at 14 percent. 2. Sell $3.2 million of common stock at $20 per share. 3. Sell $1.60 million of debt at 13 percent and $1.60 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 $2,420,000 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). Note: Enter your answers in dollars not in millions, i.e, $1,234,567. Break-Even Point Before expansion After expansion $ $ 3,840,000 4,840,000 b. The degree of operating leverage before and after expansion. Assume sales of $6.2 million before expansion and $7.2 million after (S-TVC) expansion. Use the formula: DOL = (S-TVC-FC) Note: Round your answers to 2 decimal places. Degree of Operating Leverage Before expansion After expansion 2.62 3.05 c-1. The degree of financial leverage before expansion. Note: Round your answer to 2 decimal places. Degree of financial leverage 1.60 c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $7.2 million for this question. Note: Round your answers to 2 decimal places. 100% Debt 100% Equity 50% Debt & 50% Equity Degree of Financial Leverage 4.04 1.59 2.22 d. Compute EPS under all three methods of financing the expansion at $7.2 million in sales (first year) and $10.1 million in sales (last year). Note: Round your answers to 2 decimal places. 100% Debt 100% Equity 50% Debt & 50% Equity Earnings per Share First Year Last Year

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Financial Expansion Analysis for Company X Based on the information provided heres an analysis of the companys expansion plans 1 Current Performance E... View the full answer