CAPSTONE TEST 2

The working capital of a small home-based business is $200,000. The revenues generated account to $600,000, and the profits incurred are $300,000. What would be the company's working capital turnover?

A. 3, that is,$600,000/$200,000

21. Which of the following statements accurately describes a firm's resource flow?

A. It is the firm's level of investments to maintain or build a resource.

26. Which of the following is an accurate statement about value chain analysis?

A. The value chain concept can be applied to all firms, including service firms.

A successfully implemented blue ocean strategy allows a firm to

A. charge a higher price than the cost-leader in the industry.

17. An observer may conclude that the organizational culture of Zappos, an online retailer for shoes and clothing, might be the basis for its competitive advantage. However, reverse social engineering to crack Zappos' code of success might be much more difficult for a company trying to exactly imitate its strategy. Thus, the source of Zappos competitive advantage is said to be

A. socially complex.

14. Due to path dependence

A. strategic decisions have long-term consequences.

Ratios that reflect whether or not a firm is efficiently using its resources are known as

A. turnover ratios.

Which of the following statements is true of accounting data?

Accounting data are historical data and thus backward-looking.

In 2014, Apple had a return on revenue of 29.3 percent, and Microsoft had a return on revenue of 32 percent. Even so, Apple had a higher return on invested capital than Microsoft. Why did this happen?

Apple was able to charge a much higher margin for its products and services than Microsoft.

When a firm manufactures 2,000-3,000 units of a product, it incurs an average cost of $10 per unit. When it manufactures 3,000-4,000 units of the same product, the average cost per unit reduces to $7. However, manufacturing beyond 4,000 units will raise the average cost per unit to $9. Which of the following is the firm's minimum efficient scale?

B. 3,000-4,000units

Although JetBlue used a blue ocean strategy to achieve an initial competitive advantage, it failed to maintain this advantage. Which of the following provides the best reason for this development?

B. It failed to refine its strategic position over time.

Which of the following best explains why a blue ocean strategy is difficult to implement?

B. It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost.

Why are differentiation and cost-leadership strategies referred to as generic business strategies?

B. They can be used by any organization independent to find industry context.

True Empire Autos Inc. is an automobile company known for its luxury cars and follows a differentiation strategy. In this scenario, True Empire Autos should ideally compare its strategic position with a(n)

B. automobile company that sells high-end, premium cars.

2. Amazon.com's ability to provide the largest selection of items online, combined with superior IT systems and customer service, can be referred to as its

B. core competency.

The "balanced scorecard" provides top managers with a __________ view of the business.

B. fast but comprehensive

19. Which of the following statements fails to bring out the essence of the dynamic capabilities perspective?

C. A firm's competitive advantage is derived from static resource or market advantages.

8. Mason Machines Inc. is a company that manufactures and markets consumer electronics. The unique microprocessors developed by the company contribute to its high resource immobility. According to the resource-based view of competitive advantage, which of the following is an implication of this situation?

C. The resources of Trust Machines Inc. are difficult to replicate or imitate.

The receivables turnover of VK Products Inc. is 13.6 and that of its competitor DL Goods Inc. is 6.0. What does this financial data primarily imply?

C. VK Products collects accounts receivables faster than AP Goods does

A firm's business strategy will lead to a competitive advantage if it allows the firm to

C. perform different activities than its rivals.

A firm experiences diseconomies of scale when it

C. produces at an output level beyond the minimum efficient scale.

5. The resource-based view of a firm assumes that the

C. resource bundles of firms competing in the same industry are unique to some extent and thus differ from one another

Best Fit Club, a chain of gyms and spas, requires its customers to pay a quarterly or an annual fee to use its services. Irrespective of whether they frequently use the services during the payment period or not, members have to pay in advance. Which of the following business models does this best illustrate?

C. subscription-based

34. Smooth Fusion Inc. is a software company, which has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of Smooth Fusion Inc. will best enable it to gain and sustain a competitive advantage?

C. the expertise acquired by the employees in the company

Which of the following best describes a strategic trade-off?

C. the tension between value creation and the pressure to keep cost in check

20. Green Land Inc. has used $350,000 from its total annual earnings of $1,250,000 to invest in the research and development of a multi-purpose vaccine. Its account receivable from customers is estimated to be $150,000 and accounts payable $80,000. In monetary terms, what would GreenHarvest Inc.'s resource flows be?

D. $350,000

What does it mean for a firm to have an 80 percent learning curve?

D. Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

22. Which of the following is an implication of high employee turnover in a company?

D. It results in a reduction in the company's intangible-resource stocks.

Which of the following examples uses a focused differentiation strategy?

D. a cosmetics brand that offers superior-quality skin lotion priced at 100 dollars per bottle

23. In the context of SWOT analysis, which of the following best exemplifies a firm's external opportunity?

D. an increase in its customers' disposable income

Lanman Max is a consumer electronics company. It has acquired an edge over its competitors through its ability to provide breakthrough technology at the lowest price in the market. This advantage of Dandelions Max best exemplifies a

D. core competency.

32. In the context of SWOT analysis, which of the following best exemplifies a firm's internal weakness?

D. decline in the firm's market share

Which of the following contributed the most to JCPenny's failed blue ocean strategy?

D. failure to combine a cost-leadership position with a differentiation position

10. True Moto Corp. (TMC) is a leading automobile company. The company has been able to sustain its competitive advantage primarily due to its high-quality and efficient electric motors. Most of its competitors have failed to develop similar electric motors at a reasonable price. Which of the following resource attributes listed in the VRIO framework has helped TMC sustain its competitive advantage?

D. high costs involved inimitation

. Hongwei Craft Inc. is the market leader in the pharmaceutical industry. Though most of its resources are common to those of its competitors, a few rare resources have helped the company gain and sustain a competitive advantage. Which of the following assets of Gene Craft Inc. is most likely to be considered a rare resource that is best contributing to its competitive advantage?

D. the company's chemical patents

The fixed asset turnover of a company is 8.3. What do you infer from this?

Every dollar spent on the company's fixed assets generates $8.30 o f Revenue.

The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data suggest?

For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.

How does a sustainable strategy typically help a firm?

It helps the firm achieve positive results along the social and ecological dimensions.

Which of the following is not true of risk capital?

Risk capital invested in a firm can be legally recovered if the firm goes bankrupt.

The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue, Research & Development expense/Revenue, and

Selling,general,&administrativeexpense/Revenue.

Which of the following is an advantage of a triple-bottom-line approach?

The approach takes an integrative and holistic view in assessing a company's performance.

The market capitalization of a public company is $5 billion. Each share of the company is traded at $200. What do you infer from this financial data?

The firm's number of outstanding shares is 25 million.

How does a firm capture its producer surplus for a good or service?

as profit per unit sold

A firm incurs $400 to manufacture a television. In the market, customers are willing to pay a maximum of $600 for the television priced at $500. The difference of $200 ($600 minus $400) is the

economic value created.

Photohome is a file hosting service that allows users to store up to 5GB of data with no restrictions or charges. However, users have to pay a fee for advanced features on the cloud storage system and additional storage space. Which of the following business models does this best illustrate?

freemium

A firm achieves differentiation parity ideally when

it creates the same customer value as its competitors.

Return on risk capital primarily includes

stock price appreciation plus dividends received over a specific period.

A high percentage of R&D/Revenue ratio indicates a(n)

strong focus on innovation to improve current products and services.

After trying on a dress, a consumer assesses it to be worth a maximum of $100 and is willing to pay that amount for the dress. However, the dress was priced at $80. What is the amount, $100, referred to as?

the value(V )the consumer attaches to the dress

Hugo Books Inc. is a retailer that buys books at a fixed price from publishers. Recently, Hugo offered a deal in which customers could buy a package of three mystery books at a discounted rate. Which of the following business models has

wholesale and bundling

At a certain output level, the per-unit cost incurred by a firm to manufacture a product is $5. Other factors remaining constant, what will be the new per-unit cost if the cumulative output is doubled, and the firm is able to achieve an 80 percent learning curve?

$4

Andrew invested $200,000 in the shares of a company. At the end of a year, he had earned $7,000 as dividends on his shares along with a $1,000 appreciation in the overall value of his shares. However, if Andrew had invested the same amount on an asset, like gold, the appreciation in its value would have earned him $10,000 at the end of the year. In this scenario, which of the following is Andrew's opportunity cost?

10,000

When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000- 12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?

11,000 units

A watchmaking company has priced one of its wristwatches at $210. Most of its competitors sell similar watches at $180. Selling anything less than $150 would result in a loss for the company. However, the absolute maximum a customer is willing to pay for it is $170. In this scenario, what is the reservation price of the wristwatch?

170

A firm incurs $100 to manufacture an office table. It fixes the market price of the table as $250, and discounts the price to $200. However, the maximum a person is willing to pay for it is $180. What is the amount of total perceived consumer benefits in this scenario?

180

Nicki paid $900 for a camera that she thought was worth $1100 for all the features included in it. For the consumer electronics firm selling the camera, however, the cost of producing the camera was only $350. What is the consumer surplus in this scenario?

200

Which of the following describes a peer-to-peer technique?

A company matches an individual with a cleaning services.

15. Which of the following best explains why IBM has been able to maintain its competitive advantage?

A. IBM successfully transformed itself multiple times in the data information industry over a period of more than 100 years.

_____ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors.

A. Payables turnover

28. Coral Think Inc. is a new company in the publishing industry. It has raised sufficient capital from multiple sources. It is planning to use its capital to purchase certain assets. Which of the following assets will be the most difficult for Coral Think Inc. to acquire using its capital?

A. all firms have access to the same resources.

35. To help a firm achieve a competitive advantage, each distinct activity performed in the value chain needs to

A. contribute to the firm's strategic position as either low-cost leader or differentiator

The best measure of a company's ability to meet imminent financial obligations is known as the

A. current ratio.

1. Pulse Mobiles Inc. is a cell phone manufacturing company. Its latest range of smartphones bears a straight resemblance to the Y-series range of smartphones from Talkie Gen Inc., in terms of its shape and look-and-feel. Which of the following strategies has Pulse Mobiles Inc. used to replicate the valuable and rare resource of Talkie Gen Inc.?

A. direct imitation

A company that uses a differentiation strategy can achieve a competitive advantage as long as its

A. economic value created is greater than that of its competitors.

31. In the context of the SWOT matrix, which of the following best exemplifies a firm's internal strength?

A. increase in a firm's customer loyalty

Bass Watches Inc. initially spent eight man-hours to assemble a wristwatch. But as the production doubled, the number of hours spent on assembling a watch reduced by 20 percent. This increase in productivity reduced the company's cost per unit. What is this phenomenon referred to as?

A. learning-curve effect

25. Dynamic capabilities are especially relevant for surviving and competing in markets that

A. shift quickly.

In 2014, Apple turned over its inventory more than 53 times. In stark contrast, Microsoft turned over its inventory only about 10 times during the year. Which of the following best explains this difference?

Apple had a more effective management of its global supply chain than Microsoft.

At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $60. Once the cumulative output doubled, the cost per unit reduced to $54. All other factors remaining constant, the firm has been able to achieve a(n)

B. 90 percent learning curve.

30. The share price of Groupon, a daily-deal website, fell by 90 percent just a year after its successful initial public offering. The firm was not able to sustain its competitive advantage because of the emergence of other daily-deal sites that were able to better serve the needs of local markets and specific population groups. Which of the following is the most accurate inference from this example?

B. Groupon's competency was not hard to imitate.

Smart Feet Inc. produces shoes that are better quality and cost more to make than the shoes of its competitors. Smart Feet realizes that there will be a large difference between the cost to produce the shoes and the consumer's willingness to pay for them. Even so, Smart Feet decides to charge the same price as its competitors. Which of the following will most likely be the result of this action?

B. Smart Feet will gain market share.

When Jean Cult Inc. was operating at the minimum efficient scale of 10,000-12,000 units per month, the firm's cost per unit was $20. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $22. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as?

B. diseconomies of scale

PureRinse Inc. is a brand reputed for its wide variants of body wash that introduced its range of shampoos and skin moisturizers a few years ago. Since most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is PureRinse applying?

B. economies of scope

33. In the context of the resource-based model of competitive advantage, if a successful firm exhibits resource immobility it means that the

B. firm will have a sustained competitive advantage because of its unique resources.

According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost- leadership strategy?

B. innovation that allows competitors to emerge with more economical replacements

3. Intangible assets add great value to a firm primarily because the firm's

B. knowledge and culture take time to develop and are generally difficult to imitate.

TravelEasy Inc. is a car rental business that charges customers based on how many miles they put on a car on a daily basis. As result, a person who uses a car to travel from Chicago to Denver during a week is charged much more than a person who uses a car only to travel one mile to the grocery store six times a week. TravelEasy uses a business model called

B. pay-as-you-go.

7. The "Gold Crisps" potato wafers manufactured by True Foods Inc. have been the highest selling wafers in the market. Though the market for wafers is flooded with competitors, True Foods Inc. has been able to maintain its market position for a long time. This is mainly attributed to the unique taste of the wafers that comes from the unique natural flavoring used by the company. This competency of True Foods Inc. will be considered as a(n) _____ resource in the VRIO framework.

B. rare

True Vibgyor Inc. sells its e-book readers at the cost price of $15 each. However, the company makes its profits when users have to download or buy books online. Which of the following business models is True Vibgyor implementing?

B. razor-razor-blade

16. Value Autos Inc. has been trying to directly copy the strategies of Honk Autos Inc. Even though it is evident that Honk Autos Inc.'s success comes from its just-in-time inventory system, Value Autos Inc. has not been able to effectively apply the system in the same way. This is because the organizational structures, employees, cultures, and the overall business systems of both the companies vary from each other. Which of the following barriers to imitation does this scenario best illustrate?

B. social complexity

When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in

B. strategictrade-offs.

Which of the following statements accurately brings out the difference between economies of scale and economies of scope?

Economies of scope are the savings that come from producing two or more outputs from the same resources, where as economies of scale are decreases in per-unit cost with increases in output.

Which of the following questions challenges managers to come up with strategic objectives that ensure future competitiveness?

How do we create value?

Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?

In economic value perspective, analysts not only consider historical costs, but also opportunity costs.

Which of the following is an advantage of the balanced-scorecard?

It allows managers to translate a firm's vision into measurable operational goals.

Allure is a cosmetic brand that pursues a cost-leader strategy. Which of the following statements is true of the cosmetic brand?

It appeals to the price-conscious buyers.

Which of the following statements is true of the balanced-scorecard?

It attempts to provide a holistic perspective on firm performance.

Which of the following is not an advantage of the balanced-scorecard approach to assess firm performance?

It is a tool which can be effectively used by managers for both strategic implementation and strategic formulation.

How did Marriott use economies of scope to achieve greater economic value than its competitors?

Marriott lowered its coststructure by sharing its production assets over several types of hotels, which increased its menu and thus its differentiated appeal.

The tenet behind the triple-bottom-line is that

a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.

Unlike the financial ratios based on accounting data, total return to shareholders is

an external performance metric.

Body Sync Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 12 months by paying only for 10 months. Included in the package are two health checkups and a gym kit. These add-ons by themselves are not very valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Body Sync's primary value driver is

availability of complements.

Firms pursuing a differentiation strategy primarily seek to

create higher customer perceived value than the value that competitors create

Taking advantage of the pricing flexibility inherent in the wholesale model, Amazon offered many books (especially e- books) below the cost that other retailers had to pay to publishers. By doing this, Amazon showed how business models can be affected through

disruption

Kerry the Kangaroo Inc. specializes in producing and selling a stuffed kangaroo named Kerry. Although the stuffed kangaroo has sold well, the clothes that can be bought to dress the kangaroo have not sold as well as expected. As a result, Kerry the Kangaroo has warehouses full of hats, pants, sweaters, and shoes to dress Kerry. This firm used a _____ to determine how much of its capital is tied up in these accessory items.

inventory turnover

Which of the following will hamper a differentiator's ability to achieve a competitive advantage?

lower value gap

Genevieve is a recent fashion graduate. She started her own apparel store with an investment of $300,000. In the first year she made a profit of $60,000. If she had taken up a job as a fashion editor for a magazine, she would have earned $50,000 as salary per year. Also, she could have invested her capital, $300,000, in treasury bonds and earned an interest of $12,000. Thus, the amount $62,000 ($50,000 + $12,000) would be Genevieve's

opportunity cost.

Lush Roses is a chain of premium hotels around the globe that charges higher prices for its rooms and suites when compared to the average industry standards. Yet, the hotel enjoys the largest market share in the industry. This is mainly due its highly responsive staff that has a strong commitment toward achieving a 100 percent guest satisfaction. In this scenario, which of the following is the key value driver?

superior customer service

Which of the following is not an accurate expression of the economic value created per unit of a product sold?

the difference between the price charged and the firm's cost

Product features, customer service, and complements are all examples of important

value drivers

Apple Watch retailed for $349 in 2015, and the firm was predicted to sell millions of units. The firm's total cost in terms of materials and labor for the Apple Watch was no more than $84. Thus, Apple's profit for each watch sold is an estimated $265, with a profit margin of _____ percent.

315

Osion Electronics Inc. incurs a cost of $350 to produce one unit of a cell phone. The company's management has priced the product at $600 in the market. Considering the technological advancement of the cell phone, customers perceive its value to be around $800. What is the economic value created in this scenario?

450

Milan is a recent fashion graduate. She started her own apparel store with an investment of $300,000. In the first year she made a profit of $60,000. If she had taken up a job as a fashion editor for a magazine, she would have earned $50,000 as salary per year. Also, she could have invested her capital, $300,000, in treasury bonds and earned an interest of $12,000. How much is the total opportunity cost?

62,000

24. Which of the following is a drawback of the SWOT analysis?

C. A problem with this framework is that a strength can also be a weakness, and that an opportunity can also simultaneously be a threat.

AccuroDisk Inc. manufactures external hard disks for $32 per unit, and the maximum price customers are willing to pay is $47 per unit. TD Storage Inc. is a competitor of AccuroDisk Inc. that produces external hard disks for $37 per unit, and customers are willing to pay a maximum price of $50 per unit. What does this imply?

C. Accuro Disk creates agreater economic value than TD Storage.

6. How are the critical assumptions of the resource-based model of a firm fundamentally different from the way in which a firm is viewed in the perfectly competitive industry structure?

C. In perfect competition, all firms have access to the same capabilities, whereas in the resource-based model, resource differences exist between firms in the same industry

Which one of the following helps increase the S/Q rating of branded pairs produced a particular production location?

C. Increasing expenditures for TQM/Six Sigma programs

Both Viten Electronics Inc. and JL Electronics Inc. incur a cost of $400 to manufacture a LED television. However, the economic value created by JL Electronics is more than that created by Viten Electronics. What does this indicate?

C. JL Electronics can charge a premium price on its televisions.

Handy Helper, Inc. produces decent-quality woodworking tools at a mid-range price. Master Tools, Inc. produces high- quality tools also at a mid-range price. Master Tools gained a competitive advantage because it has ______ than Handy Helper.

C. a higher value gap

27. Which of the following is an example of a firm's resources?

C. assets such as land and buildings owned by a firm

Even without differentiation parity, a firm pursuing a cost-leadership strategy can still gain a competitive advantage as long as its

C. economic value creation exceeds that of its competitors.

DiscountHaven Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller retail stores and supermarkets to compete against DiscountHaven's low prices. Thus, DiscountHaven has a competitive advantage due to its

C. economies of scale.

Free Spirit Communications Inc. is a cellular service provider that charges its customers $1 for three hours of talk time. So, if a customer's talk time for a month is 60 hours, the company charges him or her $20 at the end of the month. Which of the following business models does this best illustrate?

C. pay-as-you-go

Airbnb rents spaces that previously would have been unused to generate revenue, while also dramatically increasing the potential amount of accommodation space in the 191 countries. This business uses a _____ technique.

C. peer-to-peer

13. Which of the following is not a condition that can help a firm sustain its competitive advantage?

C. when past decisions act as constraints for the current dynamic capabilities

. Home Value Inc., Max Cart Inc., and Nice Necessities Inc. are three consumer-product retailing companies. Their products consist primarily of day-to-day items that are easy to imitate and sell. All three companies use the same resources and capabilities in the production and distribution of their products. Which of the following is an implication of the market condition indicated in this scenario

D. Any advantage that one firm has will be short-lived.

Which of the following financial ratios is used to measure a company's ability to meet its short-term financial

D. Liquidity ratios.

18. Given the accelerated pace of technological change, in combination with deregulation, globalization, and demographic shifts, a firm will only be successful today if its

D. internal strengths change with its external environment in a dynamic fashion.

12. Nomo VRD Systems Inc. took many decades to build its core competencies, and these competencies were based primarily on the decisions made by the company's top management in the past. This process is called

D. path dependence.

Which of the following is a firm effect that has an impact on the competitive advantage of a firm?

D. the value and the cost position of the firm relative to its competitors