S&S Air Company - Case Study Example

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