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S&S Air Company - Case Study Example

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Internal growth rate: This percentage of (5.3%) is the maximum growth S&S Company can grow with external financial aid.Sustainable Growth rate: Refers to the growth rate a S&S Air company can grow without external financial aid. …
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S&S Air Company
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S&S AIR COMPANY Internal growth rate= (Return on Asset x Retention ratio Return on Asset x Retention ratio)
Return on Asset= 2,029,766/19,986,170=0.10
Retention ratio= 1-dividend pay-out; Dividend pay-out= 610,000/2,029,766=0.3
1-0.3=0.7
IGR= (0.1 X 0.3)/1-(0.1 X 0.3)
0.03/0.97=0.031
3.1%
Sustainable Growth Rate= (Net income/ Shareholder’s equity) x (1-retention ratio)
(2,029,766/11,435,815) x (1-0.7)
0.18 x 0.3=0.053
5.3%
Internal growth rate: This percentage of (5.3%) is the maximum growth S&S Company can grow with external financial aid.
Sustainable Growth rate: Refers to the growth rate a S&S Air company can grow without external financial aid. The rate is 3.1%
Question two
Forecasted sales; 40,259,230(1 +0.12) = $ 45,090,338
EFN=Increase in asset-increase in liabilities-increase in retained earnings.
Increase in asset= 19,986,170 x .12=$2,398,340
Increase in liabilities= 8,550,000 x .12=$1,026,000
Increase in retained earnings= 40,259,230(1+0.12) x 0.05 x 0.7=$ 1,578,162
$2,398,340-$1,026,000-$ 1,578,162=-$ 205,822
Yes, it can because it has much finance than what is needed to increase the sale by 12%.
Question three
EFN=Increase in asset-increase in liabilities-increase in retained earnings.
Increase in asset= 19,986,170 x .12=$2,398,340 + 5,000,000=$ 7,398,340
Increase in liabilities= 8,550,000 x .12=$1,026,000
Increase in retained earnings= 40,259,230(1+0.12) x 0.05 x 0.7=$ 1,578,162
$7,398,340-$1,026,000-$ 1,578,162=-$ 4,794,178 Read More
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