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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









 

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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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