(a)
Product life cycle:
Every corporation in its operational life cycle has to pass through various phases known as “Product life cycle”. There are various stages of product life cycle like introductory phase, Growth phase, maturity phase and decline phase.
Introductory phase:
In this stage, there will be negative
Growth phase:
In this stage, the company generates certain amount of cash for running the business operations. In this stage, the net income will be higher than the cash flow from operating activities.
Maturity phase:
In this stage, the volume of sales will be at its highest peak. In this stage, net income and cash flow from operating activities will be almost similar. The cash flow from operating activities will be higher. Therefore the company will plan to pay dividends to its shareholders’ or redeem a debt or even plan for buyback of its stock.
Decline phase:
In this stage, the profits and volume of sales starts to decline or decrease. The cash flow from operating activities also decreases. Therefore the cash flow from financing activities might be negative as it pays for dividend and buy back of stock. But cash flow from investing activities might be positive as the company would try to increase its
To explain: The reason why the cash provided by operating activities likely to be lower than net income during the growth phase.
(b)
To explain: The reason why the net cash from investing activities are positive during late maturity phase and during decline phase.
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Chapter 12 Solutions
FINANCIAL ACCOUNTING LOOSELEAF
- Richard has the following potential liabilities: William, a former employee, has sued Richard for $880,000. Richard contacted his attorney, and the case is believed to be frivolous. Carter sued Richard for an undisclosed amount for a class action lawsuit. Richard thinks it's frivolous, but his attorneys indicate a loss is probable for $88,000. Charles sued Richard because he slipped outside of Richard's store. The claim is $264,000 and Richard is certain he will lose the case but believes Charles will settle. The attorneys agree and based on conversations with Charles's attorneys, have stated that it is remote the claim will be settled for $255,200. Charles's attorneys indicated he would be willing to accept either cash of $242,000 or shares of Richard's closely-held common stock currently valued at $233,200. Richard would prefer not to settle in cash. Richard is suing William for $264,000 because William is in violation of a non-compete agreement he has with Richard. Richard is…arrow_forwardNeed answer the financial accounting question not use aiarrow_forwardHow much were SMS's liabilities on these general accounting question?arrow_forward
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