Calculate the external financing needed efn assuming 12

Question

 

Assignment

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

1. Calculate the external financing needed (EFN) assuming 12% growth rate and full capacity operation. Use Excel to create pro-forma financial reports.

1. 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.