Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Numerical answers should be to the nearest hundredth of one percent. (Ex: 47.83%). For question # 1 - Show your calculations for ROE, ROA, plowback

image text in transcribedimage text in transcribed

Numerical answers should be to the nearest hundredth of one percent. (Ex: 47.83%).

image text in transcribed

For question # 1 - Show your calculations for ROE, ROA, plowback ratio, Net income, and Addition to Retained Earnings.

image text in transcribed

For question # 2 - Keep in mind that there are particular balances that do not vary with sales. You will need this hint to properly balance the Balance Sheet for this question. You must also prepare the proforma balance sheet and Income statement.

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 little planning for investment needs. As a result, the company ex- perienced some challenging times because of cash flow prob- icms. 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. 2014 Income Statement Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Dividends 610,000 Add to retained earnings 1,419,766 $40,259,230 29,336,446 5,105,100 1,804,220 $ 4,013,464 630,520 $ 3,382,944 1,353,178 $ 2,029,766 Assets Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment S&S AIR, INC. 2014 Balance Sheet Liabilities and Equity Current liabilities $ 456,435 Accounts payable $ 929,005 733,125 Notes payable 2,121,350 1,073,180 Total current liabilities $ 3,050,355 $ 2,262,740 Long-term debt $ 5,500,000 $17,723,430 Shareholder equity Common stock Retained earnings Total equity Total liabilities and equity $ 400,000 11,035,815 $11,435,815 $19,986,170 Total assets $19,986,170 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? 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 little planning for investment needs. As a result, the company ex- perienced some challenging times because of cash flow prob- icms. 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. 2014 Income Statement Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Dividends 610,000 Add to retained earnings 1,419,766 $40,259,230 29,336,446 5,105,100 1,804,220 $ 4,013,464 630,520 $ 3,382,944 1,353,178 $ 2,029,766 Assets Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment S&S AIR, INC. 2014 Balance Sheet Liabilities and Equity Current liabilities $ 456,435 Accounts payable $ 929,005 733,125 Notes payable 2,121,350 1,073,180 Total current liabilities $ 3,050,355 $ 2,262,740 Long-term debt $ 5,500,000 $17,723,430 Shareholder equity Common stock Retained earnings Total equity Total liabilities and equity $ 400,000 11,035,815 $11,435,815 $19,986,170 Total assets $19,986,170 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Benefit Analysis

Authors: Harry F. Campbell, Richard P.C. Brown

3rd Edition

1032320753, 9781032320755

More Books

Students also viewed these Finance questions