Task 2: Use DuPont Identity to evaluate S&S Airs ROE. Identify the reason why S&S Air is performing above many of its industry peers.

Guideline: 1. Use information in the file named Financial Statements and Industry Table.

Task 3: Calculate the internal growth rate and the sustainable growth rate of S&S Air.

What do these numbers mean?

Guideline: 1. Use information in the file named Financial Statements and Industry Table.

2. Assume that S&S Air maintains its dividend payout ratio of 2017 in 2018.

Task 4: S&S Air is planning to grow at its sustainable growth rate next year. Prepare S&S Airs 2018 pro forma income statement and balance sheet. Also, calculate the companys external financing needed (EFN), assuming the company is operating in full capacity. Recalculate the debt-equity ratio when EFN is fully financed by long-term debt. Compare this with the original debt-equity ratio. Are they different? Explain why you have such an answer.

Guidelines: 1. Use information in the file named Financial Statements and Industry Table.

2. When preparing the 2018 pro forma income statement, apply percentage of sales approach to depreciation and interest expenses as well.

3. Assume that S&S Air maintains its dividend payout ratio of 2017 in 2018.

4. As for balance sheet, prepare the partial (EFN in a separate row) and the full pro forma (EFN fully absorbed by long-term debt).

S&S AIR, INC 2017 Income Statement Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable Income Taxes (21%) Net Income 46,298,115 33,736,913 5,870,865 2,074,853 4,615,484 725,098 3,890,386 816,981 3,073,405 Dividends Add to retained earnings 705,000 2,368,405 S&S AIR, INC. 2017 Balance Sheet Assets Liabilities and Equity Current assets Current liabilities Cash Accounts receivable Inventory Total current assets 524,963 843,094 1,235,161 2,603,218 Accounts payable Notes payable 568,356 1,939,553 2,507,909 Long-term debt 7,300,000 Fixed assets Net Plant and equipment 20,381,945 Shareholder equtiy Common stock Retained earnings Total 460,000 12,717,254 13,177,254 22,985,163 Total assets 22,985,163 Total liabilities and equity