When a Firm Enters Stage III of Its Life Cycle

question 3

Multiple Choice

When a firm enters Stage III of its life cycle, which of the following is NOT likely to be observed?

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

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Definitions:

External Financing Needed

The amount of funding that a company must seek from external sources to finance its planned activities or investments, beyond what it can generate internally.

Capital Intensity Ratio

A measure of how much capital is used in relation to labor in the production process of a company.

Return on Assets (ROA)

A profitability ratio calculated by dividing net income by total assets, indicating how efficiently a company is using its assets to generate profit.

Percentage of Sales Approach

A method for forecasting financial needs based on the proportion of sales expected in the future.