Under which condition will a fast-growing firm create value?
A)It will create value in any circumstance.
B)If the return on invested capital (ROIC )is greater than the cost of obtaining funds.
C)If the return on invested capital (ROIc)is less than the cost of obtaining funds.
D)If the firm increases market share.

Question

Quizplus · Accepted Answer

A fast-growing firm will create value only if the return on invested capital (ROIC) is greater than the cost of obtaining funds. This means that the firm is generating profits that exceed the cost of financing the growth, which adds value to the firm. Options A and D are incorrect because creating value depends on profitability, not just growth. Option C is incorrect because if ROIC is lower than the cost of obtaining funds, then the firm is destroying value.

Under Which Condition Will a Fast-Growing Firm Create Value