Sinclair Manufacturing and Boswell Brothers Incorporated are both involved in the production of brick for the homebuilding industry. Their financial information is as follows: Sinclair Boswell Capital Structure Debt @ 10% $ 1,740,000 0 Common stock, $10 per share 1,160,000 $ 2,900,000 Total $ 2,900,000 $ 2,900,000 Common shares 116,000 290,000 Operating Plan: Sales (69,000 units at $15 each) $ 1,035,000 $ 1,035,000 Variable costs 828,000 414,000 Fixed costs 0 319,000 Earnings before interest and taxes (EBIT) $ 207,000 $ 302,000 The variable costs for Sinclair are $12 per unit compared to $6 per unit for Boswell. If you combine Sinclair’s capital structure with Boswell’s operating plan, what is the degree of combined leverage? Note: Round your answer to 2 decimal places. If you combine Boswell’s capital structure with Sinclair’s operating plan, what is the degree of combined leverage? Note: Round your answer to the nearest whole number. In part b, if sales double, by what percentage will earnings per share (EPS) increase? Note: Round your answer to the nearest whole percent.
Sinclair Manufacturing and Boswell Brothers Incorporated are both involved in the production of brick for the homebuilding industry. Their financial information is as follows: Sinclair Boswell Capital Structure Debt @ 10% $ 1,740,000 0 Common stock, $10 per share 1,160,000 $ 2,900,000 Total $ 2,900,000 $ 2,900,000 Common shares 116,000 290,000 Operating Plan: Sales (69,000 units at $15 each) $ 1,035,000 $ 1,035,000 Variable costs 828,000 414,000 Fixed costs 0 319,000 Earnings before interest and taxes (EBIT) $ 207,000 $ 302,000 The variable costs for Sinclair are $12 per unit compared to $6 per unit for Boswell. If you combine Sinclair’s capital structure with Boswell’s operating plan, what is the degree of combined leverage? Note: Round your answer to 2 decimal places. If you combine Boswell’s capital structure with Sinclair’s operating plan, what is the degree of combined leverage? Note: Round your answer to the nearest whole number. In part b, if sales double, by what percentage will earnings per share (EPS) increase? Note: Round your answer to the nearest whole percent.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
Problem 11E: Xenold, Inc., manufactures and sells cooktops and ovens through three divisions: Home, Restaurant,...
Related questions
Question
Sinclair Manufacturing and Boswell Brothers Incorporated are both involved in the production of brick for the homebuilding industry. Their financial information is as follows:
Sinclair | Boswell | |
---|---|---|
Capital Structure | ||
Debt @ 10% | $ 1,740,000 | 0 |
Common stock, $10 per share | 1,160,000 | $ 2,900,000 |
Total | $ 2,900,000 | $ 2,900,000 |
Common shares | 116,000 | 290,000 |
Operating Plan: | ||
Sales (69,000 units at $15 each) | $ 1,035,000 | $ 1,035,000 |
Variable costs | 828,000 | 414,000 |
Fixed costs | 0 | 319,000 |
Earnings before interest and taxes (EBIT) | $ 207,000 | $ 302,000 |
The variable costs for Sinclair are $12 per unit compared to $6 per unit for Boswell.
- If you combine Sinclair’s capital structure with Boswell’s operating plan, what is the degree of combined leverage?
Note: Round your answer to 2 decimal places.
- If you combine Boswell’s capital structure with Sinclair’s operating plan, what is the degree of combined leverage?
Note: Round your answer to the nearest whole number.
- In part b, if sales double, by what percentage will earnings per share (EPS) increase?
Note: Round your answer to the nearest whole percent.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College