On Excel Worksheet 5 (labeled part 2 Growth) – Estimating Growth Requirement
Calculate the Internal growth rate for SDPC.
Calculate the sustainable growth rate for SDPC.
SDPC is planning for a growth rate of 20 percent next year. How does this percentage compare to the internal growth rate that you calculated?
What are your conclusions and recommendations about the feasibility of SDPC’s expansion plans?
Assume that SDPC is currently producing at 100 percent of capacity and sales are expected to grow at 20 percent. As a result, to expand production, the company must set up an entirely new production line at an estimated cost of $95,000,000.
Input the projected 20% growth rate, the tax rate of 21%, and the $95 million increase in Fixed Assets in the pro forma Input parameters box.
Under these assumptions, how much external financing will SDPC need to implement the new production line project?
Re-compute the selected ratios assuming the external financing will be added to Long-term Debt. In other words, add the amount of EFN to Long-term debt when computing the ratios.
Will there be any significant changes the projected growth and expansion investment will cause? Explain your answer
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