Man. of Strategy Final Test Ed. 5 Chapter 7

Which of the following is an advantage of using the real options approach of evaluating a project? A. It results in better technology investment decisions than a cash flow analysis approach. B. It is useful as technology investment scenarios often conform to the same capital market assumptions upon which the approach is based. C. It is cheap to use in case of a firm undertaking solo new product development. D. It is valuable only when there is no uncertainty in technology trajectories.

A. It results in better technology investment decisions than a cash flow analysis approach.

Which of the following is true of the internal rate of return of a project? A. The discounted cash flow estimates are only as accurate as the original estimates of the profit. B. It maximizes the net present value of the investment. C. It neglects the timing of investment and cash flows. D. It does not discriminate against projects that are long term or risky.

A. The discounted cash flow estimates are only as accurate as the original estimates of the profit.

Which of the following is true of quantitative methods of analyzing new projects, particularly in rapidly changing environments? A. They enable managers to use rigorous statistical comparisons of projects. B. Their accuracy is unquestionable. C. Discounted cash flow methods are the least commonly used quantitative methods. D. They are particularly accurate in highly uncertain or rapidly changing environments.

A. They enable managers to use rigorous statistical comparisons of projects.

If a firm has the option of investing in R&D, the cost of commercializing a new technology that is developed can be considered the: A. exercise price. B. price of a call option. C. benefit of exercising the option. D. the value of the option.

A. exercise price.

Coolers Inc. has developed a new generation of air conditioners. It has upgraded the old technology by making the air conditioners work on voice sensors instead of remote control. Though the technology is new, Coolers has decided to introduce the product in the market at a low cost. This project is a(n) _____ project for Coolers Inc. A. platform B. derivative C. breakthrough D. advanced R&D

A. platform

What is the net present value (NPV) of a project if the present value of cash inflow is $10,000 and the present value of cash outflows is $5,000? A. $2,000 B. $5,000 C. $10,000 D. $15,000

B. $5,000

Fabmark Consultancy was asked by a client to evaluate the attractiveness of a potential project to develop a new product line. The data provided by the client included cash flow estimates (in dollars), ranking of marketability by the sales force, and ranking of different product attributes from a potential customer focus group. Which of the following methods would allow Fabmark Consultancy to combine this information and analyze it? A. Q-sort B. Data envelopment analysis C. Attribute ranking D. Breakeven analysis

B. Data envelopment analysis

With respect to a research and development (R&D) program, which of the following can be considered the exercise price? A. The cost of the R&D program B. The cost of future investment required to capitalize on the R&D program C. The returns to the R&D investment D. The returns to the R&D investment minus the cost of the R&D program

B. The cost of future investment required to capitalize on the R&D program

The discounted cash inflows of a project minus the discounted cash outflows is referred to as the _____. A. internal rate of return B. net present value C. real option D. screening value

B. net present value

In the context of qualitative methods for choosing projects, screening questions are used mainly to: A. increase the rate of employee attrition. B. structure the discussion about project details like potential costs and benefits. C. increase employee turnover rates. D. choose the best consulting firm to analyze a potential project.

B. structure the discussion about project details like potential costs and benefits.

Which of the following is a disadvantage of using internal rate of return for assessing a project? A. It fails to take into account the time value of money and risk. B. It cannot be calculated by trial and error. C. It discriminates heavily against long-term and risky projects. D. It fails to provide concrete financial estimates.

C. It discriminates heavily against long-term and risky projects.

NewDigger Inc. makes backhoes for digging ditches and trenches. It has developed an acid that, when poured on the ground, reduces the time and labor required to dig trenches of various depths, depending on how much is applied. The firm has recently started using this product commercially. This would most probably be considered a(n) _____ project for NewDigger. A. derivative B. platform C. breakthrough D. additive

C. breakthrough

TechToTeach Co. has developed and sold a product that can be used by students to take faster notes in a classroom as the teacher speaks. The device automatically records the teacher's voice and converts it into a text format. This new technology has been widely accepted by various universities and has been appreciated by students, thus increasing the company's inflow. This technology can be most accurately described as a(n) _____ project by TechToTeach. A. advanced R&D B. platform C. breakthrough D. derivative

C. breakthrough

An efficiency frontier is the range of _____ that optimize a combination of features of a potential project. A. product features B. attribute arrangements C. hypothetical configurations D. conjoint dimensions

C. hypothetical configurations

A firm that invests heavily in derivative projects that may be immediately commercialized with little risk: A. will have greater long-term strategic momentum. B. will be on the leading edge of technology. C. will likely be unable to compete when the market shifts to a newer technology. D. will have poor returns on its R&D investment in the short run.

C. will likely be unable to compete when the market shifts to a newer technology.

_____ refers to the allocation of a finite quantity of resources over different possible uses. A. Systematic enrollment B. Translational funding C. Organizational appropriation D. Capital rationing

D. Capital rationing

Which of the following statements is true of conjoint analysis? A. It is a simple method for ranking objects or ideas on a number of different dimensions. B. It is used by managers to compare their desired balance of projects with their actual balance of projects. C. It requires the creation of a hypothetical efficiency frontier. D. It is most commonly used to assess the relative importance to customers of different product attributes.

D. It is most commonly used to assess the relative importance to customers of different product attributes.

In the _____ method, in order to establish scales of customer preferences, individuals in a group are each given a stack of cards with an object or idea on each card. A. derivative B. conceptual C. DEA D. Q-sort

D. Q-sort

In a survey, Sam was asked to rank, on a scale of 1 to 5, how important different cell phone features were to him. The result was then used by the surveying firm to assess the different attributes of the ranking. This survey would most accurately be termed a _____ analysis. A. figurative B. translational C. fictional D. conjoint

D. conjoint

If the net present value of a project is greater than zero, then the: A. project cannot be carried out as the cash outflow is too high. B. present value of cash outflows is higher than present value of cash inflow. C. project will require 5 years to break even. D. project generates wealth.

D. project generates wealth.

According to the net present value method of discounted cash flow analysis, the time required to break even on a project using discounted cash flows is known as period of return. True False

False

Both net present value and internal rate of return techniques provide concrete financial estimates that facilitate strategic planning and trade-off decisions. True False

False

Derivative projects offer fundamental improvements in the cost, quality, and performance of a technology over preceding generations. True False

False

From a real options perspective, the value of a call stock option is zero as long as the price of the stock is more than the exercise price. True False

False

The allocation of a finite quantity of resources over different possible uses is known as research rationing. True False

False

The drawback to data envelopment analysis (DEA) is that it does not allow comparisons of projects using multiple kinds of measures. True False

False

The ratio of R&D expenditures to sales is known as R&D trajectory. True False

False

Breakthrough projects involve development of products that incorporate revolutionary new product and process technologies. True False

True

Calculating the internal rate of return of a project typically must be done by trial and error. True False

True

Data envelopment analysis (DEA) utilizes linear programming. True False

True

From a real options perspective, the exercise price associated with commercializing a new technology would include the cost of manufacturing, marketing, and distributing the technology. True False

True

Standard discounted cash flow analysis has the potential to severely undervalue a development project's contribution to a firm. True False

True

The investor is an active driver of the value of an investment. True False

True

The most common use of conjoint analysis is to assess the relative importance of different product attributes to customers. True False

True

While the value of a stock is independent of the call holder's behavior, the value of a R&D investment is not independent of the investor's behavior. True False

True