Sinclair and Bosewell Brothers Inc are both involved in the production of brick.
ID: 2702326 • Letter: S
Question
Sinclair and Bosewell Brothers Inc are both involved in the production of brick. Financial information is as follows
Debt @ 12% for Sinclair is 1680000 and Bosewell is 0
Common Stock $10 per share Sinclair is 1120000 and Bosewell is 2800000
Total for both are 2800000
Common share for SInclair are 112000 and Bosewell 280000
Operating Plan
Sales (68,000 units @ $25 each) Sinclair 1700000 Bosewell 1700000
Less:Variable Cost Sinclair 1224000(18per unit) Bosewell 816000(12 per unit)
Fixed Cost Sinclair 0 Bosewell 318,000
EBIT Sinclair 476,000 Bosewell 566,000
a= If you compare Sinclairs capital structure with Bosewells Operating Plan what is the degree of combined leverage?
b=If you combined Bosewells capital structure with Sinclairs Operating Plan what is the degree of combined leverage?
c= In part b if the sales double by what percentage will EPS increase?
Explanation / Answer
a)
DCL = 68000(25-12)/(68000(25-12) - 318000 - 75000)
DCL =1.90
b)
DCL = 68000(25-18)/68000(25-18) -0 - 0
DCL = 1
c)EPS will increase by 100 percent.however ,there is no leverage involved.EPS merely grows at the same rate as the sales grow