Company considering expansion Income Statement is as follows Sales 6200000

Company considering expansion Income Statement is as follows

Sales 6200000

Less:Variable expenses=3100000

Fixed expenses=1920000

EBIT=1180000

Intrest= 440000

EBT= 740000

Tax 30%= 222000

EAT= 518000

Shares common stock= 320000

EPS=1.62

Financed with 50% debt and 50% equity in common stock par value of $10

estimated need of 3.2 in additional financing

He has three plans to consider

1=sale 3.2 million of debt at 14%

2=sale 3.2 million of common stock @ $20

3=sale 1.60 million of debt @13% and 1.60 common stock at $25

variable cost will stay the same at 50% of sales

fixed cost increase to 2420000 per year

estimate that sales will rise by 1.60 million a year for the next five years

a= the break even point for operating expenses before and after expansion

b=The degree of operating leverage before and after the expansion assume sales of 6.2 million befoe expansion and 7.2 million after the expansion

c-1=The degree of financial leverage before the expansion

c-2=the degree of financial leverage of all three after the expansion assume sales of 7.2 million

100% Debt=

100%Equity=

50%Debt&50%Equity=

d=Compute EPS under each method of financing expansion at 7.2 million in the first year and 10.1 million in the last year.