LuluLime, an athletic apparel retailer is experiencing robust sales growth. Management is forecasting sales to double over the next year to $40,000. You have just been hired as a financial analyst and your first task is to determine the required capital needed to support this forecasted growth. The CFO has provided you with the most recent balance sheet and other financial information.

Cash	2,000	Accounts Payable	3,000
Accounts Receivable	4,000	Notes Payable	1,000
Inventories	4,000	Accruals	2,000
Fixed Assets	10,000	Long term debt	8,000
		Total Liabilities	14,000
		Common Equity	1,000
		Retained Earnings	5,000
		Total Equity	6,000
TOTAL ASSETS	20,000	Total Liabilities & Equity	20,000

Other information:

• Profit margin is forecasted at 7%.
• Dividend payout ratio is 40%.
• The company was running at capacity.
• All assets are expected to increase at the same rate as sales.

Required:

• (1 mark) How much are LuluLimes retained earnings expected to increase next year?
• (4 marks) What additional funds are required (AFN) for this forecasted growth?
• (1 mark) If the company was running at 80% capacity, how much sales growth could the company handle before requiring additional funds?
• (2 marks) Discuss what the company could do, to lower the amount of AFN?
• (2 marks) What is the balance sheet item that does not typically grow at the same rate of sales? Discuss why is this usually the case?