23 Jul WHAT DOES THIS IMPLY ABOUT CAPACITY UTILIZATION FOR THE COMPANY NEXY YEAR?
s Air Mark and Todd approached him about planning f Show more After Chris completed the ratio analysis for S&s Air Mark and Todd approached him about planning for next years 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 Christ to prepare a financial plan for the next year so the company can begin to address any outside investment requirements. The income statement and blanace sheet are shown here: 1. Calculate the internal gorwth rate and sustainable growth rate for S&S Air. What do these numbers mean? 2. S&S Air is planning for a growth rate of 12% next year. Calculate the EFN for the company assuming the company is operating at full capactiy. Can the companys sales increase at this growth rate? 3. Most assets can be increase as a percentage of sales. For instance cash can be increased by an amount. However fixed assets must be increased in specific amounts because it is impossible as a practical matter to buy part of a new plant or machine. In this case a company has a staircase or lumpy fixed cost structure. Assume S&S Air is currently producing at 100% capacity. As a result to increase production the company must set up an entirely new line at a cost of $5000000. Calculate the new EFN with this assumption. What does this imply about capacity utilization for the company nexy year? Show less
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