Why does organic growth often create more value than growth from acquisitions? Describe how different types of organic growth might create different amounts of value.
Answer to relevant QuestionsWhat is the conservation of value principle? Provide some examples of where it might apply. What is the expectations treadmill and how does it affect managers’ ability to deliver above-average TRS over long periods of time? Why do companies operating within the pharmaceutical and biotechnology industries typically sustain higher ROICs than firms in the technology, hardware, and equipment industries? Why do company growth rates typically converge much more quickly toward the average rate across all companies than their rates of ROIC, given that both ultimately depend on the underlying product life cycles? Using the methodology outlined in Exhibit 6.16, determine equity cash flow for year 1. Use the growing-perpetuity formula (based on equity cash flow) to compute BrandCo’s equity value. Assume the cost of equity is 12 ...
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