CHAPTER 5 QUIZ

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? $7,000 $10,000 $2,000 $200,000

$10,000

Gina 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? $900 $1,100 $550 $200

$200

A firm has 30 million shares outstanding, and each share is traded at $100. Also, each shareholder gets a dividend of $5 annually. In this case, the market capitalization is _____. 30,000 shares, that is, 30 million shares/$100 6 million shares, that is, 30 million shares/$5 $3 billion, that is, (30 million shares) x ($100) 20:1, that is, $100/$5

$3 billion, that is, (30 million shares) x ($100)

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

Accounting data are historical data and thus backward-looking.

From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the _____. return on risk capital economic value created consumer surplus inventory turnover

return on risk capital

____ 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 Break-even point Consumer surplus Cost of capital

Economic value created

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 of revenue. 8.3% of the company's revenue is invested in fixed assets. The return on fixed assets will break even in 8.3 years. The cost of capital invested on fixed assets is 8.3% of the total profit.

Every dollar spent on the company's fixed assets generates $8.30 of revenue.

Pilot Games Inc. allows users to play the trial versions of its games without any charge. However, users have to purchase the games to access the upgraded version of the games with advanced features. Which of the following business models is Pilot Games using in this scenario? Freemium Subscription-based Pay-as-you-go Razor-razor-blade

Freemium

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. These tools fail to indicate how the stock market views all available public information about a firm's expected future performance. These tools measure competitive advantage in absolute terms rather than relative terms. Only the book value of the share prices is taken into account when applying these measures, and not the market value.

Market volatility makes it difficult to assess firm performance through these measures, particularly in the short term.

_____ are best described as the value of the best forgone alternative use of the resources employed. Variable costs Opportunity costs Social costs Switching costs

Opportunity costs

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

Payables turnover

Manufacturers of electric fragrance diffusers sell the electric outer device at an extremely low price, sometimes even at a loss. However, they make their money on the product by charging a premium on the perfume refills that have to be replaced regularly. Which of the following business models does this best illustrate? Razor-razor-blade Subscription based Freemium Pay-as-you-go

Razor-razor-blade

_____ indicates how fast a firm is collecting the credit amount extended by a firm to its customers. Payables turnover Receivables turnover Assets turnover Inventory turnover

Receivables turnover

_____ precisely indicates how much of a firm's sales is converted into profits. Break-even price Working capital turnover Return on revenue Inventory turnover

Return on revenue

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 producer surplus The firm's cost (C) in manufacturing the dress The consumer surplus The value (V) the consumer attaches to the dress

The value (V) the consumer attaches to the dress

_____ is best described as a measure of how effectively capital is being used by a firm to generate revenue. Return on revenue Risk capital Working capital turnover Revenue per employee

Working capital turnover

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

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

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. offshoring crowdsourcing peer-to-peer binge investing

crowdsourcing

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

stock price appreciation plus dividends received over a specific period.

Mia has purchased an Internet package for three months, in which she can use 30 mbps Internet speed. However, for the service, she needs to pay a fee of $50 in advance irrespective of whether she uses the Internet during the service period or not. This arrangement best illustrates the _____ strategy. razor-razor-blade subscription-based pay-as-you-go freemium

subscription-based

A defining characteristic of the pay-as-you-go business model is that the: users pay for only the services they consume. users pay for access to a product or service whether they use it during the payment term or not. initial product is often sold at a loss in order to drive demand for complementary goods. the basic features of a service are provided free of charge, but the user must pay for premium services.

users pay for only the services they consume.