Question
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows: If
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows:
If you combine Sinclairs capital structure with Boswells operating plan, what is the degree of combined leverage?
Degree of combined leverage: ___?___
| Capital Structure | ||||
|
| Sinclair | Boswell | ||
| Debt @ 10% | $ | 660,000 |
| 0 |
| Common stock, $10 per share |
| 440,000 | $ | 1,100,000 |
|
| ||||
| Total | $ | 1,100,000 | $ | 1,100,000 |
| Common shares |
| 44,000 |
| 110,000 |
| Operating Plan |
|
|
|
|
| Sales (51,000 units at $15 each) | $ | 765,000 | $ | 765,000 |
| Less: Variable costs |
| 612,000 |
| 306,000 |
|
| ($ | 12 per unit) | ($ | 6 per unit) |
| Fixed costs |
| 0 |
| 301,000 |
|
| ||||
| Earnings before interest and taxes (EBIT) | $ | 153,000 | $ | 158,000 |
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