Posted: October 10th, 2022

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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:

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  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.)

 

  EPS will increase by [removed] %  
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