MGT 491 Flores- Ch. 5-8 MC
The ratio of SG&A/Revenue is an indicator of a firm's focus on
marketing and sales to promote its products and services.
Which of the following statements correctly compares Apple and Microsoft in 2016?
Apple had a higher return on invested capital than Microsoft.
Which of the following statements about competitive advantage is true?
Competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value.
Sugar Flakes and Cinnamon Texas Toast both produce similar puffed rice breakfast cereals. For both companies, the cost of producing a box of cereal is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other?
Increase total perceived consumer benefits through differentiation.
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 expressions accurately describes market cap?
It is the product of the number of outstanding shares and the share price.
Which of the following below are not one of the three dimensions that make up the Triple Bottom Line framework?
None of the answers are correct.
________ is the benefit that is missed or given up when an investor, individual or business chooses one alternative over another.
Opportunity cost
________ precisely indicates how much of a firm's sales is converted into profits.
Return on revenue
The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue, Research and Development expense/Revenue, and
Selling, general, and administrative expense/Revenue.
________ are the legal owners of public companies.
Shareholders
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.
Both UTech Inc. and Mirco Corp. incur a cost of $200 to manufacture a single unit of a cell phone. However, UTech Inc. charges a higher price than Mirco Corp. does, but it still sells a higher number of phones. What does this imply?
UTech Inc. creates more economic value than Mirco Corp. does.
________ denotes the dollar amount a consumer would attach to a good or service.
Value
Which of the following scenarios best illustrates bundling?
Warephase Inc. sells seed packages, in which a person can buy a package of three types of seeds at a discounted price compared to buying the seeds individually.
________ is a business model in which the manufacturer sets a fixed price on a product, but the retailer is free to set its own price.
Wholesale
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.
SonronMedia sells books by having salespeople set up appointments with potential customers and give them a sales pitch for the product. When a salesperson sells a book, he or she gets a predetermined percentage commission. This type of business model is called
an agency.
How does a firm capture its producer surplus for a good or service?
as profit per unit sold
The balanced-scorecard can accommodate
both short- and long-term performance metrics.
The translation of strategy into action primarily takes place in a firm's
business model.
In an economic context, strategy for producers is primarily about
capturing the economic value created as much as possible.
Economic value creation is best expressed as
consumer surplus plus firm profit
Jack and Jill both love hot coffee. Jack likes to keep his coffee hot during the day while Jill doesn't mind drinking room temperature coffee. Jack is willing to spend more money on a thermos than Jill is willing to spend. This example illustrates the following major limitation of employing the Economic Value Creation framework because
determining the value of a good/service through the perspective of a consumers is not a simple task because consumers have different spending habits.
Dontechi 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
LinkedIn, a professional social media website, allows its users to create their profiles for free, but charges a premium price for additional services. This is an example of a ________ business model.
freemium
The balanced-scorecard framework is a tool for strategy ________, not ________.
implementation; formulation
Competitive advantage goes to the firm that achieves the
largest economic value created.
When ASI Inc. declared a dividend of $20,000,000, its market value increased from $8 billion to $8.5 billion. However, it lost a chance to reinvest $20,000,000 in the research and development of a new product which would have earned a profit of $200 million. Thus, this $200 million is referred to as ASI Inc.'s
opportunity cost.
The ratio Cost of goods sold/Revenue indicates how efficiently a company can
produce a good.
The difference between the price charged for a product and the cost to manufacture it is referred to as the
producer surplus.
Managers can justify using the balanced-scorecard framework because research show that both ________ and ________ performance dimensions are important when examining the effectiveness of a firm's strategy.
quantitative, qualitative
From an investor's or shareholder's perspective, the measure of competitive advantage that matters most is the
return on risk capital.
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.
The types of assets that are the primary focus of accounting data but are no longer most important to competitive advantage are
tangible.
Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?
the balanced-scorecard model
Tom is attempting to measure how his customers views his firm. To do this, he uses the balanced-scorecard framework because he knows that
the customer perspective is directly linked to firm revenues and profits.
Which of the following approaches to assess competitive advantage is based on the view that noneconomic factors can have a significant impact on a firm's financial performance?
the triple-bottom-line approach
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
Which of the following is an external performance metric?
total return to shareholders
A defining characteristic of the subscription-based business model is that the
user pays for access to a product or service whether he or she uses it during the payment term or not.
A firm has 10 million shares outstanding, and each share is traded at $100. Also, each shareholder gets a dividend of $2,000 annually. In this case, the market capitalization is
$1 billion, that is, 10 million shares × $100.
A wearable technology 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
________ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it.
Economic value created
Which of the following is an advantage of the balanced-scorecard?
It allows managers to translate a firm's vision into measureable operational goals.
Which of the following statements is true of the balanced-scorecard?
It attempts to provide a holistic perspective on firm performance.
FMC Corp., a chemical manufacturer, has over 5,000 employees spread across several SBUs which collectively generate over $3 billion in annual revenues. FMC's strategic leaders initially focused solely on financial metrics as their key performance measure but is failing to achieve competitive advantage in their industry. Which of the following questions below should their senior leadership not consider while implementing the balanced score card framework?
When should we decide to divest assets and prepare for an exit strategy?
Unlike the financial ratios based on accounting data, total return to shareholders is
an external performance metric.
Denise is the CEO of a profitable business called 4-Ever-Sun Inc. which harnesses solar power, a renewable energy source that is sustainable over time. Instead of pursuing a sustainable competitive advantage, Denise decides to focus on minimizing detrimental effects on society and the planet. This strategy is known as
sustainable strategy.
Swedish furniture giant IKEA reported sales of $44 billion in 2019. The company turned a profit by recycling waste into some of its best-selling products. Before, this waste had cost the company more than $1 million per year. And the company is well on its way to "zero waste to landfill" worldwide. According to Joanna Yarrow, IKEA's head of sustainability for the United Kingdom, "We don't do this because we're tree huggers, we do this because it's very cost-effective." This passage best represents which of the following frameworks below?
the triple-bottom-line framework
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
Which of the following statements is true of accounting data?
Accounting data are historical data and thus backward-looking.
________ is best described as a measure of how effectively capital is being used by a firm to generate revenue.
Working capital turnover
The value a consumer attaches to a product or service is captured in the
consumer's maximum willingness to pay for it.
Threadless allows customers to submit their own designs and to vote on which designs they would like to see printed on a T-shirt. This business uses a ________ technique.
crowdsourcing
Nam-zim 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 Nam-zim implementing?
razor-razor-blade
The top management at Konex Vitamins, through rigorous testing, ensures that the company develops and sells vitamins that are free of harmful side effects. Also, the company ensures that the chemical waste generated in the manufacturing process is kept to a bare minimum and is disposed of according to the regulations of the Environmental Protection Agency. The management assesses its overall performance based on these dimensions. Thus, the managers at Konex Vitamins are applying the ________ approach to measure firm performance.
triple-bottom-line
A defining characteristic of the pay-as-you-go business model is that the
users pay for only the services they consume.
James is a novice investor who wants to decide between purchasing shares in Captial-UP or Mainframe Inc. Captial-UP's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Mainframe Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell James?
Captial-UP is more likely to create value while Mainframe Inc. is more likely to destroy value.
You are the CEO of a tech company and have recently undertaken a review of your company's strategy. In comparing your stock market valuation to that of your closest competitor, you note that your firm is currently valued at $50 billion, while your competitor is valued at $40 billion. How should you proceed?
Compare the current valuations with past valuations to determine a trend.
Sasha is the CEO of Enterprise Technologies, a consumer electronics manufacturer. Last year, Enterprise's return on invested capital (ROIC) was 11.6 percent, while Enterprise's closest competitor, Federation Tech, had an ROIC of 17 percent. Which of the following factors might Sasha use to convince investors to invest in Enterprise rather than Federation Tech?
Enterprise's intangible intensity was 6 percent, while Federation Tech's was 3 percent.
The working capital turnover of Complete Systems Corp. is 6.0. What does this financial data suggest?
For every dollar Complete Systems puts to work, the company realizes $6.00 of sales.
Fun Robotics produces components used in electronic toys. In fiscal year 2017, Fun Robotics earned an accounting profit of $3 million. However, Fun Robotics' production facilities might have also been used to produce components for mobile phones, which would have generated $2 million in revenues and saved the company $500,000 in production costs. Which of the following statements is true?
Fun Robotics earned an economic profit of $500,000.
Which of the following scenarios exemplifies a sustainable strategy under the triple-bottom-line approach?
Gogozoom reformulated its products to eliminate chemicals that were widely used in the industry but were being investigated for their potential negative effects on the environment.
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 a disadvantage of the balanced-scorecard approach?
It provides limited guidance about which metrics to choose.
Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?
Market volatility makes it difficult to assess firm performance through these measures, particularly in the short term.
________, which is the return on risk capital, includes stock price appreciation plus dividends received over a specific period.
Total return to shareholders
Under the ________ framework, the question "How do we create value?" is relevant when trying to improve innovation and organizational learning.
balanced scorecard
Susan is trying to determine if her company has a competitive advantage. She must be able to accomplish two critical tasks before she can substantiate this claim. First, she must assess the performance of her company accurately; second, she must
compare and benchmark her firm's performance to other competitors in her same industry.
Which of the following competitively important assets is typically excluded from a firm's balance sheet?
customer experience
By selling a tablet at $1,000 for which consumers are willing to pay up to $1,200, a consumer electronics firm makes a profit of $400 per unit. In this scenario, the amount $600, that is ($1200 - $1000) + $400, is the
economic value created.
Under the ________ framework, producer surplus is important in the quest for competitive advantage because this is the profit that a firm captures when producing and selling a good or service.
economic value creation
Treequote Industries has produced a new piece of technology that will monitor the soil moisture in a user's garden and send a notification to an app on the user's phone when it is time to water their plants. The goal of this inexpensive technology is to entice users to purchase Treequote's more expensive automated watering system, so that they can trigger the watering process from the app on their phones. Which business model is most likely to help Treequote Industries accomplish its goals?
freemium
Bioplex requires its members 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?
subscription-based
During the process of formulating an effective business model, a firm's managers should first
transform their strategy of how to compete into a blueprint of actions and initiatives.
The management team for Forever Power came up with the following vision statement: "Forever Power will conscientiously track its financial performance to ensure profits for its investors, enhance its community through employment and supporting charities, and dispose of waste in a manner that will not harm the environment." This vision statement is most likely based on the
triple-bottom-line approach.
