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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: QUESTIONS However, fixed assets must be increased in specific 1. Calculate the internal growth rate and sustainable growth amounts because it is impossible, as a practical matter. to rate for S\&S Air. What do these numbers mean? buy part of a new plant or machine. In this case, a com- 2. S\&S Air is planning for a growth rate of 12 percent next pany has a "staircase" or "lumpy" fixed cost structure. year. Calculate the EFN for the company assuming the Assume S\&S Air is currently producing at company is operating at full capacity. Can the company's 100 percent capacity. As a result, to increase production, sales increase at this growth rate? the company must set up an entirely new line at a cost of $5,000,000. Calculate the new EFN with this assump- 3. Most assets can be increased as a percentage of sales. tion. What does this imply about capacity utilization for For instance, cash can be increased by any amount. the company next year