What is the degree of combined leverage

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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

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?

b. If you combine Boswell's capital structure with Sinclair's operating plan, what is the degree of combined leverage?

c. In part b, if sales double, by what percentage will EPS increase?

Reference no: EM131205369

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