Question

As a firm progresses through the maturity stage of its life cycle, what type of financial flexible account will it be more likely to use to balance the balance sheet?

a. Property, plant & equipment
b. Issued debt
c. Share repurchases
d. Issued equity

Answer 1

Mature firms are more likely to issue debt as they have stable cash flows to manage interest payments and a desire to maintain control over operations as opposed to diluting ownership through the issuance of equity.

Step-by-step explanation:

As a firm progresses through the maturity stage of its life cycle, it is more likely to use issued debt to balance the balance sheet.

During the maturity phase of a firm's life cycle, consistent earnings and stable cash flows are common, making the servicing of debt interest payments more manageable. As companies mature, they tend to have established credit histories and relationships with lenders, which can facilitate the issuance of bonds or the taking on of bank loans.

Consequently, these firms might prefer debt to maintain more control over operations instead of diluting ownership through equity issuance. Additionally, mature firms might engage in share repurchases if they have excess cash, as this can improve financial ratios and return value to existing shareholders.