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Growth Tests

Growth Tests. The compounding effect….

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Growth Tests

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  1. Growth Tests

  2. The compounding effect… • Assume that you are looking at Twitter and that the revenues currently are $ 600 million. Assume also that you are assuming a growth rate of 30% a year in revenues for the next 10 years. Without using your calculator, estimate how much you will have as revenues (approximately) in year 10: • $ 1.5 billion • $ 3 billion • $ 6 billion • $ 8 billion • $ 12 billion

  3. The compounding effect doubled… • What would your revenues be in year 10, if you doubled the growth rate? • $ 11 billion • $ 16 billion • $ 24 billion • $ 36 billion • $ 48 billion

  4. Analyst estimates? • For many US companies, you can access analysts’ estimates of growth in the future on public sites. The consensus growth rate reported is usually • Growth rates in revenues • Growth rates in operating income • Growth rates in net income • Growth rates in EPS • Growth rates in all of the above • Growth rate in any of the above

  5. Management forecasts? In some valuations, the forecasts of earnings and growth rates come from the managers in the firm. Given that managers know a great deal more about their firms than investors or outside analysts do, you should expect these forecasts to be more realistic than outside estimates. • True • False

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