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:

Question

Quizplus · Accepted Answer

Solution:
AFN = (610/800g)(800g) - (140/800)(800g) - {800(1+g)(0.06)(1-0.4)]
0 = 610g - 140g - 28.8 - 28.8g
g = 0.0653 or 6.53%