MINICASE 129 Planning for Growth at S&S Air After Chris completed the ratio analysis for S&S Air (see Chapter 3). Mark and Todd approached him about planning for next year's sales. The company had historically used it the 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 Tood were able to draw salaries To this end, they would like Christo prepare a financial plan for the next year so the company can begin to dress sny outside investment requirements. The income statement and balance sheet are shown here SASAM, INC 2021 Inci Semen Sales $37038.492 Cost of goods sold 27529.530 Other expenses 4.696 692 Depreciation 1.659 882 EBIT $ 3.052.388 Interest 580.078 Taxable income 52.472310 Taxes (2159 618 078 Net Income $1854232 Dividends $ 565.000 Add to retained earnings 1.289,232 SAS AIR INC 2021 Balance Sheet Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment $ 419,970 674,475 988,129 $ 2.082,574 Current abides Accounts payable Notes payable Total current abies Long-term debt $ 854 555 1951,542 $ 2.806 327 $ 5.100.000 $16.305,556 Shareholder equity Common stock Retained earnings Total equity Total liabilities and equity $ 410,000 10,071 803 $10.481 803 $18.388.130 Total assets $18,388.130 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 company has a "staircase" or "lumpy" fixed cost structure. Assume S&S Air is cur- rently 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