S&S Air, Inc. 2021 Income Statement Sales $37,038,492 Cost of goods sold 27,629,530 Other expenses 4,696,692 Depreciation 1,659,882 EBIT $ 3,052,388 Interest 580,078 Taxable income $ 2,472,310 Taxes (21%) 618,078 Net income $ 1,854,232 Dividends $ 565,000 Addition to retained earnings 1,289,232

S&S Air, Inc. 2021 Balance Sheet Assets Liabilities and Equity Current assets Current liabilities Cash $ 419,970 Accounts payable $ 854,685 Accounts receivable 674,475 Notes payable 1,951,642 Inventory 988,129 Total liabilities $ 2,806,327 Total current assets $ 2,082,574 Long-term debt $ 5,100,000 Fixed assets Net plant and equipment Shareholder equity Common stock $ 410,000 Retained earnings 10,071,803 Total equity $ 10,481,803 Total assets $ 18,388,130 Total liabilities and equity $ 18,388,130 S&S Air is planning a growth rate of 12 percent next year. Calculate the EFN for the company assuming the company is operating at full capacity. Can the companys sales increase at this growth rate? 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, to buy part of a new plant or machine. In this case, the case the company has a staircase, lumpy fixed cost structure. Assume that S&S Air is currently producing at 100 percent full capacity. As a result, to increase production, the company must set up an entirely new line at a cost of $5,000,000. Calculate the new EFN with this assumption. What does this imply about capacity utilization for the next year?