CH 5 Competitive Advantage, Firm performance, Business models

Ratios that reflect whether or not a firm is efficiently using its resources are known as A. turnover ratios. B. leverage ratios. C. liquidity ratios. D. profitability ratios

A

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. A. 76 B. 215 C. 265 D. 315 E. none of the above

A

How does a sustainable strategy typically help a firm? A. It helps the firm achieve positive results along the social and ecological dimensions. B. It reduces the need for corporate social responsibility within the firm. C. It facilitates the firm in effectively isolating its external stakeholders. D. It helps the firm focus solely on its financial goals.

A

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? A. Apple was able to charge a much higher margin for its products and services than Microsoft. B. Apple had a higher cost structure than Microsoft. C. Apple spent more on research and development and marketing and sales than Microsoft. D. Apple had a much higher selling, general, and administrative expense that Microsoft.

A

Return on risk capital primarily includes A. stock price appreciation plus dividends received over a specific period. B. consumer surplus plus firm profit. C. account receivables plus account payables. D. economic value created by a firm plus reservation price.

A

The best measure of a company's ability to meet imminent financial obligations is known as the A. current ratio. B. total asset turnover. C. debt ratio. D. profit margin.

A

The fixed asset turnover of a company is 8.3. What do you infer from this? A. Every dollar spent on the company's fixed assets generates $8.30 of revenue. B. 8.3% of the company's revenue is invested in fixed assets. C. The return on fixed assets will break even in 8.3 years. D. The cost of capital invested on fixed assets is 8.3% of the total profit

A

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 B. $300,000, that is, $600,000 - $300,000 C. 2, that is, $600,000/$300,000 D. $100,000, that is, $300,000 - $200,000

A

_____ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors. A. Payables turnover B. Receivables turnover C. Assets turnover D. Inventory turnover

A

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? A. $7,000 B. $10,000 C. $2,000 D. $200,000

B

How does a firm capture its producer surplus for a good or service? A. as cost per unit sold B. as profit per unit sold C. as earnings per share D. as market price per share

B

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? A. $350 B. $450 C. $800 D. $200

B

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? A. subscription-based B. freemium C. pay-as-you-go D. razor-razor-blade

B

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? A. Smart Feet will go out of business. B. Smart Feet will gain market share. C. Smart Feet will increase its marketability. D. Smart Feet will be bought by a competitor.

B

The "balanced scorecard" provides top managers with a __________ view of the business. A. detailed and complex B. fast but comprehensive C. simple and routine D. long-term financial

B

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? A. The firm's number of outstanding shares is 5 million. B. The firm's number of outstanding shares is 25 million. C. The firm's total return to shareholder is $5 billion. D. The firm's economic value created is $5 billion.

B

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 A. freemium. B. pay-as-you-go. C. agency. D. bundling.

B

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? A. subscription-based B. razor-razor-blade C. pay-as-you-go D. direct sales

B

Unlike the financial ratios based on accounting data, total return to shareholders is A. backward-looking and historic in nature. B. an external performance metric. C. an absolute measure of competitive advantage. D. unaffected by market volatility or macroeconomic factors.

B

Which of the following is an advantage of a triple-bottom-line approach? A. The approach does not rely on an external view of a firm to assess its performance. B. The approach takes an integrative and holistic view in assessing a company's performance. C. The approach is more of a quantitative performance metric rather than a mere conceptual framework. D. The framework can help managers assess a firm's competitive advantage without taking into account the firm's performance along noneconomic dimensions.

B

Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance? A. When the need for "hard numbers" arises, managers and analysts rely on economic value creation perspective to measure competitive advantage. B. In economic value perspective, analysts not only consider historical costs, but also opportunity costs. C. Arriving at the economic value created is easy because determining the value of a good in the eyes of consumers is a simple task. D. It is the most efficient tool for assessing corporate-level competitive advantage of highly diversified companies with large product portfolios.

B

Which of the following is an advantage of the balanced-scorecard? A. It is a tool for both strategic formulation and strategic implementation. B. It allows managers to translate a firm's vision into measurable operational goals. C. The balanced-scorecard is independent of the skills of the managers responsible for its implementation. D. Its implementation is a one-time effort and does not require continuous tracking of metrics or strategic objectives.

B

Which of the following is not an accurate expression of the economic value created per unit of a product sold? A. the sum of consumer surplus and producer surplus B. the difference between the price charged and the firm's cost C. the sum of consumer surplus and firm profit D. the difference between consumer's reservation price and firm's cost

B

Which of the following is not true of risk capital? A. From the shareholders' perspective, the measure of competitive advantage is based on return on their risk capital. B. Risk capital invested in a firm can be legally recovered if the firm goes bankrupt. C. A person who provides capital to a firm gets equity shares in return. D. Return on risk capital includes stock price appreciation plus dividends received over a specific period.

B

Which of the following questions challenges managers to come up with strategic objectives that ensure future competitiveness? A. How do customers view us? B. How do we create value? C. What core competencies do we need? D. How do shareholders view us?

B

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? A. $250 B. $200 C. $180 D. $100

C

A high percentage of R&D/Revenue ratio indicates a(n) A. strong focus on marketing and sales to promote products and services. B. inefficiency in the management to focus on new products. C. strong focus on innovation to improve current products and services. D. negligent investment toward research and development.

C

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? A. $150 B. $180 C. $170 D. $210

C

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. A. offshoring B. crowdsourcing C. peer-to-peer D. binge watching

C

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? A. razor-razor-blade B. pay-as-you-go C. subscription-based D. freemium

C

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? A. razor-razor-blade B. subscription-based C. pay-as-you-go D. freemium

C

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 Hugo Books combined? A. agency and freemium B. wholesale and agency C. wholesale and bundling D. agency and bundling

C

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? A. Apple operated its own production facilities and therefore had lower production costs than Microsoft. B. Microsoft had a stronger demand for its tablet computer than Apple did for its tablet computer. C. Apple had a more effective management of its global supply chain than Microsoft. D. Microsoft had production facilities in countries with lower production costs than Apple

C

Taking advantage of the pricing flexibility inherent in the wholesale model, Amazon offered many books (especially ebooks) below the cost that other retailers had to pay to publishers. By doing this, Amazon showed how business models can be affected through A. combination. B. evolution. C. disruption. D. combustion.

C

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? A. VK Products is less efficient than DL Goods in collecting accounts receivables B. DL Goods pays its creditors more quickly as compared to VK Products C. VK Products collects accounts receivables faster than AP Goods does D. DL Goods has a larger value gap as compared to VK Products

C

The tenet behind the triple-bottom-line is that A. a firm should solely focus on increasing the economic value created to/for its customers. B. a firm's primary objective should be increasing the total returns to its shareholders. C. a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy. D. a firm's return on revenue can be broken down into three ratios: COGS/Revenue, R&D/Revenue, and SG&A/Revenue.

C

The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data suggest? A. For every $6.00 Tesva Systems puts to work, the company incurs a cost of $1.00. B. For every $6.00 Tesva Systems puts to work, the company realizes sales of $1.00. C. For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales. D. For every dollar Tesva Systems puts to work, the company realizes $6.00 in loss.

C

Find the calculation formula for the following financial ratios: Current ratio Debt ratio Operating profit margin Total assets turnover Gross profit margin Interest coverage Net profit margin Return on equity

Current Ratio = current assets / current liabilities Gross Profit Margin = gross profit / total sales revenue Operating Profit Margin = (operating profit or EBIT) / total sales revenue Net Profit Margin = net profit / total sales revenue Debt Ratio= total debt / total assets Interest Coverage Ratio = (EBIT or operating profit) /interest payment Total Assets Turnover = net sales / total assets Return on Equity = net profit / total equity

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 A. consumer surplus. B. total return to shareholders. C. customer lifetime value. D. economic value created.

D

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? A. the producer surplus B. the firm's cost (C) in manufacturing the dress C. the consumer surplus D. the value (V) the consumer attaches to the dress

D

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. A. payables turnover B. receivables turnover C. fixed asset turnover D. inventory turnover

D

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? A. $900 B. $1,100 C. $550 D. $200

D

The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue,Research & Development expense/Revenue, and A. Accounting profitability/Revenue. B. Economic value created/Revenue. C. Total return to shareholders/Revenue. D. Selling, general, & administrative expense/Revenue.

D

Which of the following describes a peer-to-peer technique? A. A company offers a cleaning service free of charge on a first-time trial basis. B. A company offers a package of cleaning supplies at a discount. C. A company places a low retail price on low-selling cleaning supplie. D. A company matches an individual with a cleaning service s.

D

Which of the following financial ratios is used to measure a company's ability to meet its short-term financial obligations? A. Leverage ratios. B. Profitability ratios. C. Activity ratios. D. Liquidity ratios.

D

Which of the following is not an advantage of the balanced-scorecard approach to assess firm performance? A. It allows managers to communicate and link the strategic vision to responsible parties within an organization. B. It helps managers to implement feedback and organizational learning in order to modify and adapt strategic goals when indicated. C. It provides a concise report that tracks chosen metrics and measures and compares them to target values. D. It is a tool which can be effectively used by managers for both strategic implementation and strategic formulation.

D

Which of the following statements is true of accounting data? A. Accounting data focus mainly on intangible assets, rather than tangible assets. B. Accounting data consider off-balance sheet items, such as pension obligations of a firm. C. Accounting data do not have to be adjusted in any manner to compare companies with different capital structures. D. Accounting data are historical data and thus backward-looking

D

Which of the following statements is true of the balanced-scorecard? A. It is a more or less a one-dimensional metric of measuring competitive advantages of a firm. B. It is one of the traditional approaches of measuring firm performance. C. Its primary focus is to base a firm's strategic goals entirely on external performance dimensions. D. It attempts to provide a holistic perspective on firm performance.

D

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 A. social cost. B. break-even price. C. reservation price. D. opportunity cost. 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? A. $50,000 B. $12,000 C. $62,000 D. $300,000 E. None of the abov

D C