mgt 400 test

How do firms benefit from vertical integration?

Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.

Which of the following is true of the board of directors in a public stock company?

Votes at shareholder meetings determine whose representatives are appointed to the board of directors.

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

Why is it easier for new entrants to involve in radical innovations when compared to incumbent firms?

Unlike incumbent firms, new entrants do not have formal organizational structures and processes.

For which of the following companies will geographic distance be the most relevant factor in deciding whether or not to trade with a target country?

A firm that extracts and exports iron ore

Which of the following best illustrates forward vertical integration? A. A firm that manufactured and sold car engines to major automobile companies launches its own line of cars. B. A chain of ice cream parlors launches a brand of toys and accessories for children. C. A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam. D. A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.

A firm that manufactured and sold car engines to major automobile companies launches its own line of cars.

Which of the following best illustrates an equity alliance?

A partnership in which RedGate Insurance Inc. has a 40 percent ownership claim in TwinTrust Finance Inc.

Which of the following best defines duality in a board of directors

A person holds both the role of CEO and chairperson of the board.

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?

A. $4

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 are historical data and thus backward-looking. C. Accounting data do not have to be adjusted in any manner to compare companies with different capital structures. D. Accounting data consider off-balance sheet items, such as pension obligations of a firm.

Accounting data are historical data and thus backward-looking.

While Cisco Systems has been successful in selecting and buying both big and small technology ventures, HP had to write off some of its recent technology acquisitions. Which of the following statements best explains this scenario?

Acquisition and integration capabilities were not equally distributed across firms.

Onico Inc., a luxury car company, sells the same cars and offers the same superior services in both its home country and foreign markets. The market it operates in faces low pressures for both local responsiveness and cost reductions. Which of the following strategies within the integration-responsiveness framework does Onico Inc. most likely pursue?

An international strategy

The payable turnover for Apple and BlackBerry (as of fiscal year 2012) was 7.4 and 24.8 respectively. From this data we can conclude that

Apple has been more efficient than Blackberry in paying creditors and generating interest-free loans from suppliers.

_____ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Vertical Integration

Which of the following has been a key driver for firms to expand globally during the globalization 3.0 stage?

Benefits from lower labor costs in manufacturing and services

BuyMart 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 BuyMart's low prices. Thus, BuyMart has a competitive advantage due to its:

C. economies of scale.

Which of the following statements is true of a strategic position?

Choosing a strategic position requires making important trade-offs between value and cost positions.

Which of the following statements is true of an international strategy?

It enables firms to leverage their home-based core competencies in foreign markets.

Which of the following statements accurately brings out the difference between economies of scale and economies of scope? A. Economies of scale refer to the decreases in per-unit cost with decreases in output, whereas economies of scope refer to the increases in per-unit cost with increases in output. B. Economies of scale result in decreasing returns to scale, and economies of scope result in constant returns to scale. C. Economies of scope are the savings that come from producing two or more outputs from the same resources, whereas economies of scale are decreases in per-unit cost with increases in output. D. Economies of scope are realized when a firm operates at the minimum efficient scale, whereas economies of scale are realized when the firm operates beyond the minimum efficient scale.

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

Which of the following is a feature of an organic organization?

High span of control

Titan Autos Inc. merged with its competitor, Cadvia Autos Inc. This allowed Titan Autos to use its technological competencies along with Cadvia Autos's marketing capabilities to capture a larger market share than what the two entities individually held. What does this scenario best illustrate?

Horizontal integration

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.

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

When approaching a bank for a loan, the borrower has better knowledge than the lender about his or her own ability to repay the loan without defaulting. What is this situation referred to as?

Information asymmetry

Which of the following statements is NOT true about innovation? A. Innovation as a competitive weapon can simultaneously create and destroy value. B. Successful innovation allows a firm to extract temporary monopoly profits. C. Innovation has to be high-tech in order to be a potent competitive weapon. D. Process innovations are made possible through advances such as the Internet.

Innovation has to be high-tech in order to be a potent competitive weapon.

Which of the following is an advantage offered by a functional structure?

It allows for a higher degree of specialization and deeper domain expertise.

Which of the following statements best describes groupthink?

It is a situation in which opinions coalesce around a leader without individuals critically challenging and evaluating that leader's opinions and assumptions.

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.

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

Which of the following is one of the features of an international strategy?

It is characterized by limited local responsiveness.

Which of the following is a characteristic of a public stock company?

Legal personality allows a firm's continuation beyond the founder or the founder's family.

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 of the following real-world scenarios best exemplifies formalization?

McDonald's use of standard operating procedures across the world

Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self interests. What does this best illustrate?

Principal-agent problem

Which of the following is an unintended side-effect of a high degree of specialization in an organization?

Reduced employee satisfaction due to repetition of tasks

Which of the following is NOT true of risk capital? A. From the shareholders' perspective, the measure of competitive advantage is primarily 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.

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

Which of the following statements best supports the separation of ownership and control in publicly traded companies?

Shareholders own stocks but do not run the company.

_____ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.

Strategic alliances

How does a conglomerate benefit from following an unrelated diversification strategy?

The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

. In a non-equity alliance, which of the following types of information would firms most likely share?

The documented information about the material composition of a product

In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems?

The expectation that the agent will act in the principal's best interest

Which of the following is a competitive benefit experienced by the first mover firm in an industry?

The first mover will be able to reduce costs through economies of scale

Which of the following is a drawback of using the industry life cycle as a framework to guide strategic choice?

The framework does not explain everything about changes in industries

In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply?

The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation

Which of the following statements best describes local responsiveness?

The need to tailor product and service offerings to fit native consumer preferences and host-country requirements

Which of the following real-world events would act as the most likely deterrent against adopting a purely stakeholder strategy approach to business?

The nonsustainable debt levels incurred by sovereign governments to fund social program

Which of the following is a drawback of pursuing a multidomestic strategy?

The strategy is costly and inefficient because it requires the duplication of key business functions across several countries.

Which of the following is an advantage of non-equity alliances?

They are flexible and easy to initiate and terminate.

Which of the following is NOT true about the members of the board of directors in a public stock company?

They are not responsible to shareholders.

Which of the following best explains why a board of directors may grant stock options as part of a compensation package?

To align incentives between shareholders and management

Which of the following is NOT a reason why firms enter alliances?

To replace competitive advantage with competitive parity

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

While there are no diseconomies to learning, there are diseconomies to scale

_____ is best described as a measure of how effectively capital is being used by a firm to generate revenue.

Working capital revenue

A primary advantage of organizing economic activity within firms is the:

ability to coordinate highly complex tasks to allow for specialized division of labor.

The Mansion Hotel Group purchased Red Brick Hotels for an estimated value of $120 billion. All the hotels previously owned by Red Brick Hotels are now managed by the Mansion Hotel Group and are known as Mansion hotels. What does this scenario best illustrate?

an acquisition

Companies that pursue related diversification are able to create a diversification premium because they:

are able to increase value due to economies of scope

General Electric's CEO, Jeffrey Immelt, decided to refocus GE's portfolio of businesses and leverage the firm's core competency in industrial engineering while pursuing future-growth industries. The two industries that CEO Immelt had identified as major future-growth industries were the:

clean-technology sector and health care sector.

A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the:

differentiator is able to create a significant difference between perceived value and current market prices.

In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should:

divest the strategic business unit.

By selling a laptop at $1000 for which consumers are willing to pay up to $1200, 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

A differentiation strategy works best when a:

firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

A greater cultural distance between two trading countries:

increases the liability of foreignness

If a strategic business unit is recognized as a cash cow, it is advisable to:

invest into the business to hold its current position.

India has been able to carve out a competitive advantage in business process outsourcing (BPO) primarily because:

of an abundance of well-educated, English-speaking young people.

A firm experiences diseconomies of scale when it

produces at an output level beyond the minimum efficient scale

Incumbent firms favor incremental innovation over radical innovation because:

radical innovation will disturb the existing power distribution within the firms.

When a firm is said to be pursuing a geographic diversification strategy, it means that the firm will:

sell its products in several different regional, national, and international markets.

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

strong focus on innovation to improve current products and services

A company that is using extrinsic motivation as an output control mechanism will most likely:

threaten to lay off employees if they do not achieve targets.