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# Mini Case Essay

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1.
ROA = Net income/ Total Assets
= \$1,537,452/ 18,308,920
= 0.084
b = Add to retained earnings / Net income
= \$977,452/ 1,537,452
= 0.636
ROE = Net income / Total Equity
= \$1,537,452/ 10,069,920
= 0.153
* Internal growth rate = (ROA x b)/ (1 – ROA x b)
= (0.084 x 0.636) / (1 – 0.084 x 0.636)
= 0.0564
Therefore, S&S Air can expand at a maximum rate of 5.64% per year without external financing.
* Sustainable growth rate = (ROE x b) / (1- ROE x b)
= (0.153 x 0.636) / (1- 0.153 x 0.636)
= 0.1078
Therefore, S&S Air can expand at a maximum rate of 10.78% per year without external equity financing.
2. S&S Air is planning for a growth rate of 12% next year.
Change in Assets = \$18,308,920 x 0.12 = \$2,197,070.4
Change in Liabilities = \$889,000 x 0.12 = \$106,680

EBIT = (Sales – Cost of goods sold – Other expenses) x 1.12 – Depreciation
= (\$30,499,420 – 22,224,580 – 3,867,500) x 1.12 – 1,366,680
= \$3,569,540.8 (1)
EBIT = (1) – Interest
= \$3,569,540.8 – 478,240 = \$3,091,300.8
Change in Retained earnings = EBIT x (1 – Tax rate) x b
= \$3,091,300.8 x (1- 0.4) x 0.636
= \$1,179,640.385
*   EFN =   Change in Assets - Change in Liabilities - Change in Retained earnings
= \$2,197,070.4 - 106,680 - 1,179,640.385 = \$910,750.015

|   | S&S Air, Inc. |   |   |
|   | Pro forma Income Statement and Balance Sheet |   |   |
|   | 12% growth rate |   |   |
|   | Income Statement |   |   |
Sales |   |   | \$34,159,350.40 |   |
Cost of good sold | | | \$24,891,530 |   |
Other expenses | | | \$4,331,600 |   |
Depreciation | | | \$1,366,680...

• Submitted by: Mapmummim1
• on April 2, 2014
• Length: 427 words
• Views: 131
• Popularity Rank: 473898
• 1 rating(s)

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