Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows:
Sinclair
Boswell
Capital Structure
Debt @ 11%
$
1,440,000
0
Common stock, $10 per share
960,000
$
2,400,000
Total
$
2,400,000
$
2,400,000
Common shares
96,000
240,000
Operating Plan:
Sales (64,000 units at $20 each)
$
1,280,000
$
1,280,000
Variable costs
1,024,000
640,000
Fixed costs
0
314,000
Earnings before interest and taxes (EBIT)
$
256,000
$
326,000
The variable costs for Sinclair are $16 per unit compared to $10 per unit for Boswell.
a.
If you combine Sinclair’s capital structure with Boswell’s operating plan, what is the degree of combined leverage? (Round your answer to 2 decimal places.)
Degree of combined leverage
[removed]
b.
If you combine Boswell’s capital structure with Sinclair’s operating plan, what is the degree of combined leverage? (Round your answer to the nearest whole number.)
Degree of combined leverage
[removed]
c.
In part b, if sales double, by what percentage will EPS increase? (Round your answer to the nearest whole percent.)
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