Question 5 5 points Which of the following is not true durin

Question 5 (5 points)

Which of the following is not true during the rapid expansion phase of a company’s life?

Question 5 options:

External funding needs are high.

Internal financing is negative or low.

External financing is usually through venture capital or common stock.

The company can use internal financing only and grow rapidly, thus saving money.

Solution

Option D is correct Option

In case of expansion phase, the busines has successfully attracted few customers and made its presence in market. But it needs funding to increase its presence or scale up in market (Hence Option A is true). However, at this stage they are almost producing low or negative internal cash flows, the firm cannot rely on internal financing structures (Option B is true). They hence move to the venture capitalist or private equity who can fund them for their growth needs. Some companies may also move to stock market at this stage itself (Option C is true).

However, as mentioned earlier, they do not generate sufficient internal funds or cash flows for internal financing at this stage, option D is not true and hence is our answer.