Lullaby Lane Bedding Inc A) 653%
B) 1

Lullaby Lane Bedding Inc. needs to determine the amount of growth the firm could experience without having to obtain external financing. The current sales level is $800,000, the net profit margin is 6%, and the dividend payout ratio is 40%. Assume the firm is currently operating at full capacity and all assets will increase proportionately with sales. Lane's current balance sheet follows: $\begin{array}{|l|c|r|r|}\hline\text { Cash } & \$ 30,000& \text { Accounts Payable } & \$ 140,000 \\\hline \text { Accounts Receivable } & 90,000& \text { Notes Payable } & 50,000 \\\hline \text { Inventories } & 110,000 &\text { Long-term Debt } & 280,000 \\\hline \text { Net Fixed Assets } & \underline{380,000}& \text { Common Stock } & 40,000 \\\hline&\$610,000&\text { Retained Earnings }&100,000\\\hline&&&\$610,000\\\hline\end{array}$

A) 6.53%
B) 1.09%
C) 11.97%
D) 13.50%