Chapter 4 ong em Francia Parning and Gowth 123 MINICASE Planning for Growth at S&S Air After Chris completed the ratio analysis for S&S Air (sce Chapter 1, Mark and Todd approached him about plaring for next year's sales. The corripaniy had histencally used little planting for investment needs. As a result, the company ex xrienced some challenging times because of cash flow proh- lerts. The lack of planning resulted in missed sales, as well as periods when Mark and Todd were unable to draw salaries. To this end, they would like Chris to prepure a financial plan fur the next year the company can hegin to address any outside investment requirements. The income statement and balance sheet are shown here: S&S AIR, INC. 2018 Income Statement Sales Cost of goods sed Other experses Depreciation EBIT Interest Taxable income Taxes 2191 Net Income Dividends $ 705,000 Add to retained comings 1.512,783 $48.298,115 34.535,913 5,870.885 2.074.853 $ 3.815,484 725.098 $ 3,090,386 772,597 S 2.317,789 Assets Current assets Cash Accounts receivable Inventory Tatal current assets Fixed Assets Net plant and equipment S&S AIR. INC. 2018 Balance Sheet Liabilities and Equity Current liabilities S 524.963 Accounts payable $ 1,068,358 843.094 Notes puyable 2.139,553 1,235,161 Total current liabilities $ 3,507,909 $ 2,503,218 Long-term deat $ 6,300.000 520,381,945 Shareholder culty Commur stock Retrincat camnings Tota equity Total liabilities and equity $ 460.000 12,717 254 $13.177.254 $22.985.163 Tola assets $22.985.163 QUESTIONS 1. Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean? 2. S&S Air is planning for a growth rate of 12 percent est year. Calculate the EFN for the company assurning the company is operating at full capacity. Can the company's sales increase at this growth rate! 3. Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets must be increased in specific amounts because it is impossible, as a practical matter, In buy part of a new plant or machinc. In this case, a company has a "staircase" or "lumpy" fixed cost structure. Assume S&S Air is cur- rcitly producing at 100 percent capacity. As a result, to increase prosluction, the company triest set up an entirely new line at a cost of $5.XI.Io. Calculate the new HEN with this assumption. What does this imply about capacity utilization for the company next year? Chapter 4 ong em Francia Parning and Gowth 123 MINICASE Planning for Growth at S&S Air After Chris completed the ratio analysis for S&S Air (sce Chapter 1, Mark and Todd approached him about plaring for next year's sales. The corripaniy had histencally used little planting for investment needs. As a result, the company ex xrienced some challenging times because of cash flow proh- lerts. The lack of planning resulted in missed sales, as well as periods when Mark and Todd were unable to draw salaries. To this end, they would like Chris to prepure a financial plan fur the next year the company can hegin to address any outside investment requirements. The income statement and balance sheet are shown here: S&S AIR, INC. 2018 Income Statement Sales Cost of goods sed Other experses Depreciation EBIT Interest Taxable income Taxes 2191 Net Income Dividends $ 705,000 Add to retained comings 1.512,783 $48.298,115 34.535,913 5,870.885 2.074.853 $ 3.815,484 725.098 $ 3,090,386 772,597 S 2.317,789 Assets Current assets Cash Accounts receivable Inventory Tatal current assets Fixed Assets Net plant and equipment S&S AIR. INC. 2018 Balance Sheet Liabilities and Equity Current liabilities S 524.963 Accounts payable $ 1,068,358 843.094 Notes puyable 2.139,553 1,235,161 Total current liabilities $ 3,507,909 $ 2,503,218 Long-term deat $ 6,300.000 520,381,945 Shareholder culty Commur stock Retrincat camnings Tota equity Total liabilities and equity $ 460.000 12,717 254 $13.177.254 $22.985.163 Tola assets $22.985.163 QUESTIONS 1. Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean? 2. S&S Air is planning for a growth rate of 12 percent est year. Calculate the EFN for the company assurning the company is operating at full capacity. Can the company's sales increase at this growth rate! 3. Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets must be increased in specific amounts because it is impossible, as a practical matter, In buy part of a new plant or machinc. In this case, a company has a "staircase" or "lumpy" fixed cost structure. Assume S&S Air is cur- rcitly producing at 100 percent capacity. As a result, to increase prosluction, the company triest set up an entirely new line at a cost of $5.XI.Io. Calculate the new HEN with this assumption. What does this imply about capacity utilization for the company next year