Below you will find background information for this assignment and two multi-part questions that you will have to answer. Question A has 2 parts and Question B has 3 parts (Each of the five parts will be worth 20 points).
Use the Assignment 3 Submit link under the Assignments tab to submit a file (Word, Excel or other popular format) with your answers.
Round all answers to 2 decimals and all intermediate work to 4 decimals. Showing your work on your answer file may get you partial credit if your answer is incorrect 
PLEASE DO NOT COPY OTHER CHEGG ANSWERS! I WILL DOWNVOTE
QUESTION B Planning for Growth at S&S Air After Chris completed the ratio analysis for S&S Air (see Chap- ter 3), Mark and Todd approached him about planning for next year's sales. The company had historically used little planning for investment needs. As a result, the company experienced some challenging times because of cash flow problems. 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 prepare a financial plan for the next year so the company can begin to address any outside investment require ments. The income statement and balance sheet are shown here: S&S Air, Inc. 2012 Income Statement Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Dividends $560,000 Add to retained earnings 977,452 $30,499,420 22,224,580 3,867,500 1.366.680 $ 3,040,660 478,240 $ 2,562,420 1,024,968 $ 1,537,452 Assets Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment S&S Air, Inc. 2012 Balance Sheet Liabilities and Equity Current liabilities $ 441.000 Accounts payable $ 689,000 508,400 Notes payable 2.230,000 1.237,120 Total current liabilities $ 2,919.000 $ 2,186,520 Long-term debt $ 5,320,000 $16,122,400 Shareholder equity Common stock Retained earnings Total equity Total liabilities and equity $ 350,000 9,719.920 $10,069,920 $18,308,920 Total assets $18,308,920 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 next year. Calculate the EFN for the company assuming 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 to buy part of a new plant or machine. In this case, a com- pany has a "staircase" or "lumpy" fixed cost structure. Assume S&S Air is currently producing at 100 percent capacity. As a result, to increase production, the company must set up an entire line cost of $5,000,000. Calculate the new EFN with this assump- tion. What does this imply about capacity utilization for the company next year? QUESTION B Planning for Growth at S&S Air After Chris completed the ratio analysis for S&S Air (see Chap- ter 3), Mark and Todd approached him about planning for next year's sales. The company had historically used little planning for investment needs. As a result, the company experienced some challenging times because of cash flow problems. 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 prepare a financial plan for the next year so the company can begin to address any outside investment require ments. The income statement and balance sheet are shown here: S&S Air, Inc. 2012 Income Statement Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Dividends $560,000 Add to retained earnings 977,452 $30,499,420 22,224,580 3,867,500 1.366.680 $ 3,040,660 478,240 $ 2,562,420 1,024,968 $ 1,537,452 Assets Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment S&S Air, Inc. 2012 Balance Sheet Liabilities and Equity Current liabilities $ 441.000 Accounts payable $ 689,000 508,400 Notes payable 2.230,000 1.237,120 Total current liabilities $ 2,919.000 $ 2,186,520 Long-term debt $ 5,320,000 $16,122,400 Shareholder equity Common stock Retained earnings Total equity Total liabilities and equity $ 350,000 9,719.920 $10,069,920 $18,308,920 Total assets $18,308,920 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 next year. Calculate the EFN for the company assuming 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 to buy part of a new plant or machine. In this case, a com- pany has a "staircase" or "lumpy" fixed cost structure. Assume S&S Air is currently producing at 100 percent capacity. As a result, to increase production, the company must set up an entire line cost of $5,000,000. Calculate the new EFN with this assump- tion. What does this imply about capacity utilization for the company next year
