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HW2_LongtermFinancialPlanningnMinicase.docHomework 2
Chapter 4 mini-case - S&S Air long term financial planning
Note: data is based on the S&S Air financial statements
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S&S Air, INC. |
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2009 Income Statement |
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Sales |
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$30,499,420 |
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Cost of goods sold |
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$22,224,580 |
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Other expenses |
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$3,867,500 |
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Depreciation |
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$1,366,680 |
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EBIT |
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$3,040,660 |
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Interest |
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$478,240 |
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Taxable income |
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$2,562,420 |
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Taxes (40%) |
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$1,024,968 |
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Net income |
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$1,537,452 |
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Dividends |
$560,000 |
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Add to retained earnings |
$977,452 |
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S&S Air, INC. |
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2009 Balance Sheet |
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Assets |
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Liabilities and Equity |
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Current assets |
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Current liabilities |
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Cash |
$441,000 |
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Accounts payable |
$889,000 |
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Accounts receivable |
$708,400 |
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Notes payable |
$2,030,000 |
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Inventory |
$1,037,120 |
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Total current liabilities |
$2,919,000 |
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Total current assets |
$2,186,520 |
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Long term debt |
$5,320,000 |
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Fixed assets |
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Net plant and equipment |
$16,122,400 |
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Shareholder equity |
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Common stock |
$350,000 |
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Retained earnings |
$9,719,920 |
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Total equity |
$10,069,920 |
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Total assets |
$18,308,920 |
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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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