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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 | ||
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| Total | $ | 2,400,000 | $ | 2,400,000 | |
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| 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 | |||
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| Earnings before interest and taxes (EBIT) | $ | 256,000 | $ | 326,000 | |
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| 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.) |
| EPS will increase by | [removed] % |
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