Chapter 2: 20BP_d (page 150)

Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows:
Capital Structure
Sinclair
Boswell
Deb @11%
$900,000
0
Common stock, $10 per share
600,000
$1,500,000
Total
$1,500,000
$1,500,000
Common shares
60,000
150,000
Operating plans
Sales (55,000 units at $20 each)
$1,100,000
$1,100,000
Less: variable cost
880,000
($16 per unit)
550,000
($10 per unit)
Fixed cost
0
305,000
Earnings before interest and taxes (EBIT)
$220,000
$245,000
d. In part b, if sales double, by what percentage will EPS increase?

Short Answer

Expert verified

When the sales double in part b, then the EPS of the company also doubled. It increases by 100%.

Step by step solution

Number of shares

$\begin{array}{rcl} Number of shares & = & \frac{Share capital}{Price per share} \\ = & \frac{$ 1, 500, 000}{10} \\ = & 150, 000 \end{array}$

Earning per share

Particulars	Amount after sales double	Amount before sales double
Sales (55,000 x $20) x2	$2,200,000	$1,100,000
Less: Variable cost (55,000 x $16) x 2	1,760,000	880,000
Operating income	$440,000	$220,000
Less: Fixed cost	0	0
Less: Interest cost of Boswell	0	0
Earning before tax (EBT)	$440,000	$220,000
Less: taxes	0	0
Earning after tax	$440,000	$220,000
No. of shares	150,000	150,000
EPS	2.93	1.46

% increase in EPS

$\begin{array}{rcl} % increase in EPS & = & \frac{EPS after sales double - EPS before sales double}{EPS before sales double} \times 1 \\ = & \frac{$ 2.93 - $ 1.46}{$ 1.46} \times 100 \\ = & 100 % \end{array}$

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Short Answer

Step by step solution

Number of shares

Earning per share

% increase in EPS

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Human Resources

Strategic Direction

Managerial Economics

Nature of Business

Strategic Analysis

Operational Management

Study anywhere. Anytime. Across all devices.

Capital Structure
	Sinclair	Boswell
Deb @11%	\(900,000	0
Common stock, \)10 per share	600,000	\(1,500,000
Total	\)1,500,000	\(1,500,000
Common shares	60,000	150,000
Operating plans
Sales (55,000 units at \)20 each)	\(1,100,000	\)1,100,000
Less: variable cost	880,000 (\(16 per unit)	550,000 (\)10 per unit)
Fixed cost	0	305,000
Earnings before interest and taxes (EBIT)	\(220,000	\)245,000