MINICASE Pese 123 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 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 requirements. The income statement and balance sheet are shown here: 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 Add to retained earnings 1289,232 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 current liabilities $ 2,806,327 Total current assets $ 2,082,574 Long-term debt $ 5,100,000 Fixed assets Shareholder equity Net plant and equipment $16,305,556 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 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 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