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2
Valuation: Measuring and Managing the Value of Companies, Sixth Edition
Chapter 2 ROIC and Growth Drive Value
Solutions
1. Higher ROIC generally means higher free cash flow because it means that the firm need not
growth.
2. Although the discounted cash flow gives an estimate of value, the sources of value creation are
3. Growth destroys value when the ROIC on the new projects is less than the cost of capital. If ROIC
is consistently less than the cost of capital, investors would prefer that the firm reduce growth.
4. A firm with high ROIC and low growth will benefit more from an increase in growth. A firm with
high growth and low ROIC will benefit more from an increase in ROIC. Utilities have a large
5. Two sources of organic growth are competing to lure customers away from rivals and expanding
the portfolio by either developing new products or expanding the market. Expanding the
