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.)
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 20P
Related questions
Question
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning