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% $ 2,100,000 0
Common stock, $10 per share 1,400,000 $ 3,500,000
Total $ 3,500,000 $ 3,500,000
Common shares 140,000 350,000
Operating Plan:
Sales (75,000 units at $15 each) $ 1,125,000 $ 1,125,000
Variable costs 900,000 450,000
Fixed costs 0 325,000
Earnings before interest and taxes (EBIT) $ 225,000 $ 350,000
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.