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. $ 6,800,000 3,400,000 1,980,000 $ 1,420,000 560,000 860,000 258,000 602,000 Before expansion After expansion $ 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 $3.8 million in additional financing. His investment banker has laid out three plans for him to consider: Break-Even Point $ 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 of common stock at $25 per share. $ $ $ Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,480,000 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: 3,960,000 4,960,000 380,000 1.58 a. The break-even point for operating expenses before and after expansion (in sales dollars). (Enter your answers in dollars not in millions, i.e, $1,234,567.)
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. $ 6,800,000 3,400,000 1,980,000 $ 1,420,000 560,000 860,000 258,000 602,000 Before expansion After expansion $ 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 $3.8 million in additional financing. His investment banker has laid out three plans for him to consider: Break-Even Point $ 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 of common stock at $25 per share. $ $ $ Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,480,000 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: 3,960,000 4,960,000 380,000 1.58 a. The break-even point for operating expenses before and after expansion (in sales dollars). (Enter your answers in dollars not in millions, i.e, $1,234,567.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
$ 6,800,000
3,400,000
1,980,000
$ 1,420,000
560,000
860,000
258,000
602,000
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 $3.8 million in additional financing. His investment banker has laid out three plans for
him to consider:
Before expansion
After expansion
$
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 of common stock at $25 per share.
Break-Even Point
$
Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increas to $2,480,000 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:
$
$
380,000
1.58
a. The break-even point for operating expenses before and after expansion (in sales dollars). (Enter your answers in dollars not in
millions, i.e, $1,234,567.)
3,960,000
4,960,000
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