Question: i need help with the computing of Question A, B, C, AND D AND EXPLANATION THANKS. Phelps Canning Company is considering an expansion of its

i need help with the computing of Question A, B, C, AND D AND EXPLANATION THANKS.

i need help with the computing of Question A, B, C, AND

Phelps Canning Company is considering an expansion of its facilities, Its current income statement is as follows Sales 5, Pee, he0 Less: Variable expense (Sex of sales) 2,590, 620 Fixed exponce Earnings before interest and taxes (EBIT) 709, 80a Interest (183 cost) Earnings before taxes (EBT) See, eno Tax (347) 178,090 Berning: after taxes (EAT) 138, 603 Shares of common stock 289, 909 EPS 1. 65 Phelps Canning Company is currently financed with 50 percent debt and 50 percent equity (common stock). To expand facilities, Mr. Phelps estimates a need for $2 million in additional financing. His Investment dealer has laid out three plans for him to consider. 1. Sell $2 million of debt at 13 percent 2. Sell $2 million of common stock at $20 per share 3. Sell $1 million of debt at 12 percent and $1 million of common stock at $25 per shere. Variable costs are expected to stay at 50 percent of sales. while fixed expenses will increase to $2 300,000 per year Mr. Phelps is not sure how nuch this expansion will add to sales, but he estimates that sales will rise by $1 million per year for the next five years. Mr. Phelps is interested in a thorough analysis of his expansion plans and methods of financing *. Compute the break every point for operating expenses before and after expansion (in sales dollars) (Enter your answers in dollars, not In million of dollars.) Break-even point before expansion Break even point after expansion b. Compute the degree of operating leverage (DOL) before and after expansion. Assume sales of $5 million before expansion and $6 million after experision. (Round the final answer to 2 decimal places.) DOL before expansion COL after expansion c. Compute the degree of financial leverage (DFL) before expansion at sales of $5 million and for all three methods of financing after expansion Accume Sales of $6 million for the second part of this question. (Round the final answer to 2 decimal places.) the before expansion DFL after expansion In85 Debt two after expansion Lest Equity DFL afte- expansion set bent and Equity a. Compine EPS under all three methods of financing the expansion at $6 million in sales (first year) and $10 million in sales (last year). (Round the final answer to 2 decimal places.) baht and Equity ERS For the First year Epp Forthe Last year

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!