pianning for Growth at S&S Air After Chris completed the ratio analysis for S&S ter 3), Mark and Todd approached him about year's sales. The company had historically for investment needs. As a result, the company challenging times because of eash flow Air (see Chap- planning resulted in missed sales, as well as periods when Mark planning for next and Todd were unable to draw salaries. To this end, they would y used little planning like Chris to prepare a financial plan for the next year so the experienced some company can begin to address any outside investment require problems. The lack of ments. The income statement and balance sheet are sbown here: Chap next planning kc sotne lack of &5 Air, Inc. 2008 Income Statemant Sales Cost of goods sold Other expenses 30,499,420 22,224,580 1,366,680 nterest Taxable income Taxes (40%) 478,240 $ 2,582,420 $1537,452 6B1 | 1,024,068 tTay Net income Dividends $560,000 Add to retained earnings 977,452 PART 2 Financial Statements and Long-Term Financial Planning S8S Air, Inc 2000 Balance Sheelt Liabilitios and Equity Current assets $ 889,000 2,030,000 2,919,000 5,320,000 23 a ,00 $ 441,000Accounts payable 708,400 Notes payable Accounts receivable 1,037,120 Total current liabilities 2,186,520 Long-term debt Total current assets Fixed assets Shareholder equity Net plant and equipment $16,122,400 $ 350,000 9,719,920 920 $18,308,920 Common stock Retained eamings Total eguity $18,308,920 Total liabilities and equity Total assets 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 com- pany has a "staircase" or "lumpy" 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 assump tion. What does this imply about capacity utilization for the company next year? QUESTIONS Calculate the intemal growth rate and sustainable growth rate for SS Air. What do these numbers mean? fixed cost structure 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? Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. 2. 3