MINICASE

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 lit$-$

the planning for investment needs. As a result, the compary

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:

Based on the content covered in Week $4$ and Chapters $3$ and $4$ of the Ross, et al$.(2022)$ text, students learned about financial statement analysis and long$-$term financial planning and growth. Students should address the following:

Review $$Mini Case: Planning for Growth at S&S Air$$ in your textbook on page $129,$ also found at the end of Chapter $4$ in your textbook. Then, answer the following questions:

Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean? How do you know?

S&S Air is planning for a growth rate of $12\%$ 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? Explain your reasoning.

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 $100\%$ 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?

Consider how long term planning and growth is affected by location in the world. Discuss how you would advise S&S Air about planning and growth in your own country and expansion into other countries?

Paper should be $4-6$ pages and include all calculations referenced in the assignment questions.