Seminar 2 N1591

Valuation of Companies and Cash Flow Generating Assets (N1591)

Autumn Term 2019/20

Seminar 2: Growth (McK Chap 7)

Short Answer Questions

1. Discuss the three generic sources of a company’s growth, their relative importance for its
growth, and the implications for a company’s strategy.

2. For which type of company is additional growth likely to create more value: A high ROIC
company in a mature market, or a low-ROIC company in a fast-growing market? Give reasons
for your answer.

3. Describe how different types of organic growth might create different amounts of value. Why
does organic growth often create more value than growth from acquisitions?

4. Why do fast-growing companies typically fail to sustain their high growth rates?

5. Why do company growth rates typically converge much more quickly towards the average
rate across all companies than their rate of ROIC, given that both ultimately depend on the
underlying product life cycles?

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Seminar 2 N1591

Multiple Choice Questions

6. Which of the following is most accurate concerning corporate growth rates?

A. High growth rates decay quickly, and large companies struggle to grow.
B. High growth rates are sustainable for 10 years or more, but large companies struggle to
grow.
C. High growth rates decay quickly, but large companies grow more easily than small
companies.
D. High growth rates are sustainable for 10 years or more, and large companies grow more
easily than small companies.

7. Which of the following is LEAST likely to result in above-average, long-run value creation?

A. Create new markets through new products.

B. Attract new customers into the market.
C. Convince existing customers to buy more of a product.
D. Gain market share from rivals through product promotion.

8. Companies in which of the following industries or sectors have had the lowest growth rates?

A. Software.
B. IT services.
C. Automobiles.
D. Health-care equipment.

9. Which of the following usually result in above-average value creation?

I. Make large acquisitions.

II. Attract new customers into the market.
III. Convince existing customers to buy more of a product.
IV. Make bolt-on acquisitions to accelerate product growth.

A. I and II only.
B. I, III, and IV only.
C. II and III only.
D. II, III, and IV only.

10. Which of the following is most accurate concerning the median revenue growth rates of
firms over the years 1965 to 2013?

A. The range was 1.5% to 12%, with a median of 7.2%.

B. The range was 0% to 9%, with a median of 5.3%.
C. The range was 2.2% to 8.8%, with a median of 4.2%.
D. The range was -0.2% to 6.6%, with a median of 3.3%.