Question

it is not unusual for a successful firm to temporarily grow more rapidly than its sustainable growth rate if the firm is in the _____phase of business.
a. swan song
b. start -up
c. cash cow
d. middle

Answer 1

Solution:

The answer is b. start-up.

In the start-up phase successful firms that may initially have a small market share may grow fast and in excess of their sustainable growth rate for a temporary period of time. In such cases, the firm may need additional funding to stabilise its growth rate to the level of its sustainable rate.

In the swan song stage the firm is nearing its end and growth rates slow down and consistently fall below the sustainable rate leading to the risk of closure.

The cash cow phase is when the firm generates a steady profit that is more than what it has spent to begin operation or to acquire the firm. The growth rate tends to be near its sustainable rate. These firms are usually acquired so that their cash flows can be used to fund other higher growth firms that have higher returns.

In the middle phase growth may not exceed the sustainable rate as the firm achieves maturity.