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6
Valuation: Measuring and Managing the Value of Companies, Fifth Edition
Chapter 5 Solutions
Growth
1. The three sources of growth are: (1) portfolio momentum (expanding the market), (2)
market share performance, and (3) mergers and acquisitions. Based on a study over the
years 1999 to 2006, their relative importance in explaining revenue growth is about 65
2. Of the two choices, additional growth will create more value for the high-ROIC firm in
the mature market, where there is probably slow growth. Growth has the most benefit in a
3. Bolt-on acquisitions tend to create more synergies because the acquiring firm has large
existing product lines and can choose the best small firms that can complement them.
opportunity for value creation.
4. Price wars rarely create lasting value for companies. The one exception is if the price war
5. High growth rates are usually sustained by continually coming out with new products.
6. To maintain a high growth rate, new products must be developed. Without new products,
7. The rankings of firms by growth rates vary greatly over time because of structural factors
such as changes in customer demand or the influx of substitutes. As some industries
begin and quickly grow, others mature and experience decreasing growth. Also, the
8. Companies put effort into product promotion and pricing competition for two reasons.
