Question

The information in the following table is from the statement of cash flows for a company at four different points in time (Period 1, Period 2, Period 3, and Period 4). Negative values are presented in parentheses.

Current Attempt in Progress The information in the following table is from the statement of cash flows for a company at four different points in time (Period 1, Period 2, Period 3, and Period 4). Negative values are presented in parentheses. Period 1 Period 2 Period 3 Period 4 Cash provided by operations $(176400) $88200 $352800| $49000 Cash provided by investing (294000) 73500 88200 (117600) Cash provided by financing 284200 (215600)|($1666000) $411600 Net income (117600) 29400 294000 (14700)

Answer 1

The four phases can be identified as mentioned below:

In the Introductory phase the company introduces the product to the market. For this purpose, the company pools money by various financing activities and purchases assets. Hence the financing cash flows will be positive and Investing cash flows will be negative. Since it is the initial stage for product operating cash flows will also be negative. The net profit is also negative in this stage. By observing the table we can identify Period 1 as the Introductory phase.

In the growth phase, the company expands its product. For this purpose, the company obtains money and invests further. Hence financial cash flows will be positive and Investing cash flows will be negative. But since the company is growing the sales increase and the operating cash flows will be positive. Net profit will be slightly negative or slightly positive in this stage. By observing table we can identify Period 4 as the Growth phase.

In the maturity phase, the company starts repayment of borrowings and dividends, hence the financial cash flows will be negative. The operating cash flows will be significantly higher in this phase since the sales are at a maximum. Due to this, the company starts investing the surplus money resulting in positive investing cashflows. The net profit is maximum at this phase due to higher sales and positive returns on investments. By observing table we can identify Period 3 as the maturity phase.

In the declining phase, the sales start declining resulting in reduced operational cash flows but positive cash flows. The company continues to receive positive cash flows on investments but the amount is reduced. The financial cash flows are still negative due to the payment of dividends. The net profit is positive but reduced as compared to the maturity stage. By observing table we can identify Period 2 as the declining phase

Hence the correct option is Option 1.