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Mini Case Essay

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Below is an essay on "Mini Case" from Anti Essays, your source for research papers, essays, and term paper examples.

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...

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Mini Case. Anti Essays. Retrieved November 22, 2017, from the World Wide Web: http://www.antiessays.com/free-essays/Mini-Case-603003.html