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: Sales S&S Air, Inc. 2021 Income Statement Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxes (21%) Net income Dividends $565,000 Add to retained earnings 1,289,232 S&S Air, Inc. $37,038,492 27,629,530 4,696,692 1,659,882 $3,052,388 580,078 $ 2,472,310 618,078 $1,854,232 2021 Balance Sheet Assets Current assets Cash Liabilities and Equity Current liabilities $419,970 Accounts payable Accounts receivable 674,475 Notes payable Inventory 988,129 Total current liabilities Total current assets $ 2,082,574 Long-term debt Fixed assets Net plant and equipment $16,305,556 Shareholder equity Total assets QUESTIONS $ 854,685 1,951,642 $ 2,806,327 $5,100,000 Common stock Retained earnings $410,000 10,071,803 Total equity $10,481,803 $18,388,130 Total liabilities and equity $18,388,130 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?