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Calculate the internal growth rate (IGR) and sustainable growth rate (SGR) for S&S Air Calculate the external financing needed (EFN) assuming 12% growth rate and full capacity operation. Use Excel to create pro-forma financial reports. Assume that the company, currently operating at full capacity, cannot simply increase fixed assets by 12%. Instead, the firm must buy a new line of business at a cost of 5 million dollars. Calculate the external financing needed (EFN) and capacity utilization for next year. Use Excel to create pro-forma financial statements and clearly explain your thinking and calculations. 

Homework 2

Chapter 4 mini-case – S&S Air long term financial planning

Note: data is based on the S&S Air financial statements

 

S&S Air, INC.

2009 Income Statement

Sales   $30,499,420
Cost of goods sold   $22,224,580
Other expenses   $3,867,500
Depreciation   $1,366,680
EBIT   $3,040,660
Interest   $478,240
Taxable income   $2,562,420
Taxes (40%)   $1,024,968
Net income   $1,537,452
Dividends $560,000  
Add to retained earnings $977,452  

  

 S&S Air, INC.

2009 Balance Sheet

Assets

 

Liabilities and Equity

Current assets     Current liabilities  
Cash $441,000   Accounts payable $889,000
Accounts receivable $708,400   Notes payable $2,030,000
Inventory $1,037,120   Total current liabilities $2,919,000
Total current assets $2,186,520      
      Long term debt $5,320,000
Fixed assets        
Net plant and equipment $16,122,400   Shareholder equity  
      Common stock $350,000
      Retained earnings $9,719,920
      Total equity $10,069,920
         
Total assets $18,308,920   Total liabilities and equity $18,308,920

  1. Calculate the internal growth rate (IGR) and sustainable growth rate (SGR) for S&S Air
  2. Calculate the external financing needed (EFN) assuming 12% growth rate and full capacity operation. Use Excel to create pro-forma financial reports.
  3. Assume that the company, currently operating at full capacity, cannot simply increase fixed assets by 12%. Instead, the firm must buy a new line of business at a cost of 5 million dollars. Calculate the external financing needed (EFN) and capacity utilization for next year. Use Excel to create pro-forma financial statements and clearly explain your thinking and calculations.

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