Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 @ 12% $ 1,680,000 0
Common stock, $10 per share 1,120,000 $ 2,800,000
Total $ 2,800,000 $ 2,800,000
Common shares 112,000 280,000
Operating Plan:
Sales (68,000 units at $25 each) $ 1,700,000 $ 1,700,000
Variable costs 1,224,000 816,000
Fixed costs 0 318,000
Earnings before interest and taxes (EBIT) $ 476,000 $ 566,000

The variable costs for Sinclair are $18 per unit compared to $12 per unit for Boswell.

a. If you combine Sinclairs capital structure with Boswells operating plan, what is the degree of combined leverage? (Round your answer to 2 decimal places.)

b. If you combine Boswells capital structure with Sinclairs operating plan, what is the degree of combined leverage? (Round your answer to the nearest whole number.)

c. In part b, if sales double, by what percentage will earnings per share (EPS) increase? (Round your answer to the nearest whole percent.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Concepts And Practice Of Mathematical Finance

Authors: Mark S. Joshi

1st Edition

0521823552, 9780521823555

More Books

Students also viewed these Finance questions