Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean? How do you know?

Learning Goal: I’m working on a finance discussion question and need an explanation and answer to help me learn.

• Fundamentals of Corporate Finance

• Chapter 4: “Long-Term Financial Planning and Growth” (47 pages)
• Video:
• Haggard, S. (2015, June 25). Long term financial planning [Video]. YouTube. https://www.youtube.com/watch?v=NrQnq5MRXWk&feature=youtu.beText book :
• TEXT BOOK : Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of corporate finance (13th ed.). McGraw-Hill

D Q 1 – 5 pages required with Conclusion & 5 Reference papers)

TABULAR FORMS (EXCEL) & VISUAL REPRESENTATION DIAGRAMS“ COMPULSORY “

Review “Mini Case: Planning for Growth at S&S Air” in your textbook on page 129, also found at the end of Chapter 4 in your textbook. Then, answer the following questions:

• Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean? How do you know?
• 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 capacity. Can the company’s sales increase at this growth rate? Explain your reasoning.
• Most assets can be increased as a percentage of sales. For instance, cash can be increased by any 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 $5,000,000. Calculate the new EFN with this assumption. What does this imply about capacity utilization for the company next year?