Instructions:

The following data shows a company's income statement and balance sheet accounts, assuming a $40\%$ tax rate.

Sales $$46,298,115\mathrm{.}00$

Retained earnings $$12,717,254\mathrm{.}00$

Other expenses $ $5,870,865\mathrm{.}00$

Notes Payable $ $2,439,553\mathrm{.}00$

Net PP&E $$20,381,945\mathrm{.}00$

Long$-$term debt $ $6,300,000\mathrm{.}00$

Inventory $ $1,235,161\mathrm{.}00$

Interest $ $725,098\mathrm{.}00$

Dividends $ $705,000\mathrm{.}00$

Depreciation $ $2,074,853\mathrm{.}00$

Common stock $ $460,000\mathrm{.}00$

COGS $$34,536,913\mathrm{.}00$

Cash $ $524,963\mathrm{.}00$

Accounts Receivable $ $843,094\mathrm{.}00$

Accounts Payable $ $1,068,356\mathrm{.}00$

You are required to do the following tasks:

$1-$Calculate the internal growth rate and sustainable growth rate for the company. What do these numbers mean?

$2-$The company plans to grow by $12\%$ next year at full capacity. Calculate EFN and determine if sales can support growth.

$3-$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 company has a $$staircase$$ or $$lumpy$$ fixed cost structure. Assume company is currently producing at $100$ percent 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 company next year?