C O Not secure ezto.mheducation.com/mtpx sinclair Manufacturing and Boswell Brot

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C O Not secure ezto.mheducation.com/mtpx sinclair Manufacturing and Boswell Brothers inc. are both involved in the production of brick for the homebuiding industry, Their tnancial informaton is as tolows Capital Structure Debt@12% Common stock $10 per share Total Common shares $1 320,000 880000 2,200000 2,200,000 2.200,000 Plan Sales (62.000 units at $25 oach) $1.550,000 1.550.000 744,000 312000 5 434,000 494,000 Variable coats Foed costs 1,116,000 Eanings before interest and taxes (EBIT) The vanable costs for Sinclair are 318 per unit compared to $12 per unt for Boswell a. If you combine Sinciairs captal structure with Boswel's operating plan,what is the degree af combined leverage? (Round your answer to 2 decimal places.) b. I you comone Bosweirs capital structure witn Sincliair's operating plan what is the degree of combined leverage? [Round your answer to the nearest whiole number o. in pert t ir saves ooue by wnat percentage sit emings per share Eps) inc ease? Round your answer to me nearest whele percent

Explanation / Answer

Anwer a) Degree of combined leverage = Contribution/ EBT =(sales- Variable cost)/EBT Company Sl # Given that - Boswell i sales 1550000 Boswell ii variable cost 744000 Boswell iii=i-ii Contribution 806000 Boswell iv Fixed cost 312000 Boswell v EBIT 494000 Sinclair vi Int 158400 =1320000*12% Operating plan of Boswell and Capital structure of Sinclair vii=v-vi EBT 335600 Degree of combined leverage =iii/vii          2.40 Hence, answer is 2.4 Anwer b) Company Sl # Given that - Sinclair i sales 1550000 Sinclair ii variable cost 1116000 Sinclair iii=i-ii Contribution 434000 Sinclair iv Fixed cost 0 Sinclair v EBIT 434000 Boswell vi Int 0 0 Operating plan of Sinclair and Capital structure of Boswell vii=v-vi EBT 434000 Degree of combined leverage =iii/vii          1.00 Hence, answer is 1 Anwer c) Degree of combined leverage also explain as % change in EPS/% change in sales we have - Degree of combined leverage 1 % change in sales 200% % changein EPS = 1* % change in sales = 200% Hence, EPS will also double

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