When a Firm Enters Stage III of Its Life Cycle

question 44

Multiple Choice

When a firm enters Stage III of its life cycle, all of the following are likely to be observed except which?

• A) Dividend payout ratios are likely to rise to a moderate level of 20 to 30 percent of earnings.
• B) More competition is likely to enter the firm's market.
• C) Sales begin to decrease.
• D) Stock splits are common.

---

Definitions:

Opportunity Sets

The range of possible investment opportunities available to an investor, given their resources and risk tolerance.

Risk-free Rate of Return

The theoretical rate of return of an investment with zero risk, typically represented by government bonds.

Market Rate of Return

The expected or average annual rate of return on an investment, based on historical or specified market data.

Asset-specific Risk

The risk associated with an investment in a specific asset, which can result from factors unique to that asset, independent of the market.