Delsing Canning Company is considering an expansion of itsfacilities. Its current income statement is as follows:

Sales	$	6,800,000
Variable costs (50% of sales)		3,400,000
Fixed costs		1,980,000
Earnings before interest and taxes (EBIT)	$	1,420,000
Interest (10% cost)		560,000
Earnings before taxes (EBT)	$	860,000
Tax (30%)		258,000
Earnings after taxes (EAT)	$	602,000
Shares of common stock		380,000
Earnings per share	$	1.58

The company is currently financed with 50 percent debt and 50percent equity (common stock, par value of $10). In order to expandthe facilities, Mr. Delsing estimates a need for $3.8 million inadditional financing. His investment banker has laid out threeplans for him to consider:

1. Sell $3.8 million of debt at 14 percent.
2. Sell $3.8 million of common stock at $20 per share.
3. Sell $1.90 million of debt at 13 percent and $1.90 million ofcommon stock at $25 per share.

  

Variable costs are expected to stay at 50 percent of sales,while fixed expenses will increase to $2,480,000 per year. Delsingis not sure how much this expansion will add to sales, but heestimates that sales will rise by $1 million per year for the nextfive years.
Delsing is interested in a thorough analysis of his expansion plansand methods of financing.He would like you to analyze thefollowing:

a. The break-even point for operating expensesbefore and after expansion (in sales dollars). (Enter youranswers in dollars not in millions, i.e, $1,234,567.)
  

b. The degree of operating leverage before andafter expansion. Assume sales of $6.8 million before expansion and$7.8 million after expansion. Use the formula: DOL = (S ?TVC) / (S ? TVC ? FC). (Roundyour answers to 2 decimal places.)
  

c-1. The degree of financial leverage beforeexpansion. (Round your answer to 2 decimal places.)
  

c-2. The degree of financial leverage for allthree methods after expansion. Assume sales of $7.8 million forthis question. (Round your answers to 2 decimalplaces.)
  

d. Compute EPS under all three methods offinancing the expansion at $7.8 million in sales (first year) and$10.7 million in sales (last year). (Round your answers to2 decimal places.)