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IAI Actuarial Core Principles · Business Finance · Corporate growth, restructuring and divestment

A listed Indian manufacturer expands by opening new plants and building its own distribution network funded from retained profits. Which description best fits this growth strategy?

This is organic growth. The firm expands through its own resources by building plants and a distribution network from retained profits, without acquiring or merging with any other company, which is what defines inorganic growth.

  1. AOrganic growth, because expansion comes from the firm's own resources and operationsCorrect
  2. BInorganic growth, because new assets are being created
  3. CHorizontal merger, because the firm is expanding capacity
  4. DVertical takeover, because distribution is being added
  5. Divestment, because retained profits are being reinvested

Explanation

Organic growth is expansion using the firm's internal resources, such as building plants and its own networks. Inorganic growth requires acquiring or combining with other businesses. No other company is bought or merged here, so the merger and takeover options are wrong.

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