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

A listed Indian textile company decides to expand by opening new weaving units on land it already owns, financed from retained profits. Which description best fits this growth strategy?

This is organic growth. The company expands its own capacity by building new units on its own land and funds it from retained profits, without acquiring or combining with any other business, so it is not a merger, integration or divestment.

  1. AOrganic growth, because capacity is built internally using the firm's own resourcesCorrect
  2. BInorganic growth, because new physical assets are being acquired
  3. CHorizontal merger, because the new units perform the same activity
  4. DVertical integration, because the firm controls its own land
  5. Divestment, because retained profits leave the firm's cash balance

Explanation

Organic growth comes from expanding a firm's own operations using internal resources, such as building new units from retained earnings. No other firm is acquired or merged, so it is not inorganic. A merger needs a combination with another entity, and vertical integration needs a move along the supply chain.

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