MGMT 434 Final Exam Ch. 5

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?

$200

Triple-bottom-line

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

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?

170

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 had a more effective management of its global supply chain than Microsoft.

_____ 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.

A. Economic value created (similar to reservation price and total perceived consumer benefits)

Which of the following expressions accurately describes market cap?

A. It is the product of the number of outstanding shares and the share price.

Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?

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

How is the triple-bottom-line approach different from the traditional approaches to measuring competitive advantage?

A. The triple-bottom-line takes a more integrative and holistic view in assessing a company's performance than traditional approaches do.

_____, which is the return on risk capital, includes stock price appreciation plus dividends received over a specific period.

A. Total return to shareholders

GlobalCom Inc. is an Internet service provider. It provides a router free of charge when users sign up for a two-year wireless service plan. In this plan, users pay in advance irrespective of whether they use the Internet package during the two-year period or not. Which of the following business models does this scenario best illustrate?

A. a combination of the razor-razor-blade model and the subscription-based business model

Which of the following is the most accurate characterization of stakeholder theory?

A. an approach to understanding a firm as embedded in a network of internal and external constituencies that each make contributions and expect consideration in return

Jenny liked a pair of sapphire earrings and thought they would cost around $1,000. She was surprised to find that the price of the earrings was $1,500. However, she decided to buy the earrings anyway. This scenario describes

A. consumer surplus.

Competitive advantage goes to the firm that achieves the

A. largest economic value created.

The ratio Cost of goods sold/Revenue indicates how efficiently a company can

A. produce a good.

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?

A. razor-razor-blade

From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the

A. return on risk capital.

Return on risk capital primarily includes

A. stock price appreciation plus dividends received over a specific period.

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

A. strong focus on innovation to improve current products and services.

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?

A. the triple-bottom-line approach

During the process of formulating an effective business model, a firm's managers should first

A. transform their strategy of how to compete into a blueprint of actions and initiatives.

A defining characteristic of the pay-as-you-go business model is that the

A. users pay for only the services they consume.

Best Cut Inc. sells cutlery by having salespeople set up appointments with potential customers and give them a sales pitch for the product. When a salesperson sells cutlery, he or she gets a predetermined percentage commission. This type of business model is called

Agency

18. Which of the following statements is true of accounting data?

B. Accounting data are historical data and thus backward-looking.

15. 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?

B. Apple was able to charge a much higher margin for its products and services than Microsoft.

_____ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).

B. Fixed asset turnover

Which of the following questions challenges managers to come up with strategic objectives that ensure future competitiveness?

B. How do we create value?

When using the balanced-scorecard approach to assess a firm's performance, which of the following is not a key question that managers need to answer?

B. How do we reduce the economic value created?

Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?

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

Which of the following is an advantage of the balanced-scorecard?

B. It allows managers to translate a firm's vision into measureable operational goals.

_____ are best described as the value of the best forgone alternative use of the resources employed.

B. Opportunity costs

Which of the following is not true of risk capital?

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

_____ denotes the dollar amount a consumer would attach to a good or service.

B. Value

How does a firm capture its producer surplus for a good or service?

B. as profit per unit sold

The value a consumer attaches to a product or service is captured in the

B. consumer's maximum willingness to pay for it.

Janet is the CEO of Far Sight Inc., which uses a triple-bottom-line approach. As a result, Janet will tend to

B. expect her company to be socially responsible.

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?

B. freemium

The ratio of SG&A/Revenue is an indicator of a firm's focus on

B. marketing to promote its products and services.

TravelCheap 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. TravelCheap uses a business model called

B. pay-as-you-go.

In the _____ business model, the initial product is often sold at a loss or given away for free in order to drive demand for complementary goods.

B. razor-razor-blade

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?

B. razor-razor-blade

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.

C. 315% profit/cost *100

Which of the following describes a peer-to-peer technique?

C. A company matches an individual with a cleaning service.

Which is not true?

C. Competitive advantage is an absolute measure.

_____ of receivables turnover imply more efficient management in collecting accounts receivable and shorter durations of interest-free loans to customers.

C. Higher ratios

_____ precisely indicates how much of a firm's sales is converted into profits.

C. Return on revenue

_____ is the money shareholders provide in return for an equity share, which they cannot recover if the firm goes bankrupt.

C. Risk capital

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?

C. Smart Feet will gain market share.

Which of the following is not a limitation of the economic value creation framework?

C. The framework fails to provide the foundation that will help firms decide between cost-leadership or differentiation strategies.

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

C. Working capital turnover

The balanced-scorecard can accommodate

C. both short- and long-term performance metrics.

The translation of strategy into action primarily takes place in a firm's

C. business model.

In an economic context, strategy for producers is primarily about

C. capturing the economic value created as much as possible.

Economic value creation is best expressed as

C. consumer surplus plus firm profit.

Taking advantage of the pricing flexibility inherent in the wholesale model, Amazon offered many books (especially e-books) below the cost that other retailers had to pay to publishers. By doing this, Amazon showed how business models can be affected through

C. disruption.

In order to achieve a competitive advantage, a firm should be able to

C. increase the difference between the value created and the cost to produce it.

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?

C. pay-as-you-go

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?

C. subscription-based

The top management at Parallela Pharma Inc., through rigorous testing, ensures that the company develops and sells drugs 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 Parallela Pharma are applying the _____ approach to measure firm performance.

C. triple-bottom-line

The management team for SafeCare Chemicals Inc. came up with the following vision statement: "SafeCare Chemicals 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

C. triple-bottom-line approach.

In the freemium business model, the

C. users are not charged for the basic features of a product or service, but the user must pay for premium advanced features or add-ons.

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?

C. wholesale and bundling

Inventory Turnover

COGS/Inventory

which of the following statements is no true of competitive advantage

Competitive advantage is an absolute measure

Which of the following competitively important assets is typically excluded from a firm's balance sheet?

Customer Experience

Which is true?

D. Competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value.

Which of the following statements is true of the balanced-scorecard?

D. It attempts to provide a holistic perspective on firm performance.

Which of the following is not an advantage of the balanced-scorecard approach to assess firm performance?

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

Which of the following statements is true of the triple-bottom-line?

D. Three dimensions, economic, social, and ecological, make up the triple-bottom-line.

The translation of strategy into action takes place in the firm's _____, which details the firm's competitive tactics and initiatives.

D. business model

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.

D. inventory turnover

Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?

D. the balanced-scorecard model

Which of the following is not a factor that makes total return to shareholders and market capitalization unreliable measures of company performance?

D. the unpredictability of return on revenue

Which of the following is an external performance metric?

D. total return to shareholders

The cost of capital to create a product is a fixed cost because it is

D. unaffected by consumer demand.

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

Economic value created - the difference between a buyer's willingness to pay for a product or service and the firm's total cost to produce it.

Which scenario best illustrate bundling?

Fresh Seeds 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.

The difference between the price charged for a product and the cost to manufacture it is referred to as the

Producer Surplus

The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue, Research & Development expense/Revenue, and

Selling, general, & administrative expense/Revenue.

_____ are the legal owners of public companies.

Shareholders

________ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).

fixed asset turnover

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.

peer-to-peer