Strategic management Test 2 (60-120)
A firm has 30 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
$3 billion, that is, 30 million shares × $100.
Which of the following statements is true of accounting data?
) Accounting data are historical data and thus backward-looking.
Which of the following competitively important assets is typically excluded from a firm's balance sheet?
) customer experience
The working capital of a small home-based business is $200,000. The revenues generated account to $600,000, and the profits incurred are $300,000. What would be the company's working capital turnover?
3, that is, $600,000/$200,000
AccuroDisk Inc. manufactures external hard disks for $32 per unit, and the maximum price customers are willing to pay is $47 per unit. TD Storage Inc. is a competitor of AccuroDisk Inc. that produces external hard disks for $37 per unit, and customers are willing to pay a maximum price of $50 per unit. What does this imply?
AccuroDisk creates a greater economic value than TD Storage.
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?
Apple had a more effective management of its global supply chain than Microsoft.
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?
Apple was able to charge a much higher margin for its products and services than Microsoft.
Evia Cycles Inc. incurs $400 to manufacture a bicycle, and the maximum price customers are willing to pay is $550 per unit. Archer Cycles Inc., its competitor, incurs $450 to manufacture a similar bicycle, and customers are willing to pay a maximum price of $620 for it. What does this indicate?
Archer Cycles has created a greater economic value than Evia Cycles.
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
Which of the following ratios best expresses inventory turnover?
Cost of goods sold/Inventory
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.
________ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).
Fixed asset turnover
) The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data suggest?
For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.
Both Viten Electronics Inc. and JL Electronics Inc. incur a cost of $400 to manufacture a LED television. However, the economic value created by JL Electronics is more than that created by Viten Electronics. What does this indicate?
JL Electronics can charge a premium price on its televisions.
) ________ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors.
Payables turnover
________ indicates how fast a firm is collecting the credit amount extended by a firm to its customers.
Receivables turnover
________ precisely indicates how much of a firm's sales is converted into profits.
Return on revenue
Which of the following best expresses fixed asset turnover?
Revenue/Fixed assets
Which of the following is not true of risk capital?
Risk capital invested in a firm can be legally recovered if the firm goes bankrupt.
________ are the legal owners of public companies
Shareholders
While Aros Inc. incurs a cost of $20 for a pair of shoes, Shoes Cult Inc., its competitor, manufactures a pair of shoes at $22. Both the companies are able to sell their shoes for a maximum of $30 per pair. Which of the following statements is true in this scenario?
Shoes Cult has a competitive advantage over Aros.
Which of the following is a feature of the growth stage of the industry life cycle?
The consumer demand increases.
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.
Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle?
There is more strategic variety in the growth stage when compared to the introduction stage.
Why are differentiation and cost-leadership strategies referred to as generic business strategies?
They can be used by any organization independent of industry context.
________, which is the return on risk capital, includes stock price appreciation plus dividends received over a specific period.
Total return to shareholders
The receivables turnover of VK Products Inc. is 13.6 and that of its competitor DL Goods Inc. is 6.0. What does this financial data primarily imply?
VK Products collects accounts receivables faster than AP Goods does.
While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?
While the industry for cell phones with holographic keyboards will focus on product innovation, the tablet industry will focus on process innovation.
________ is best described as a measure of how effectively capital is being used by a firm to generate revenue.
Working capital turnover
Process innovation is more important than product innovation during the growth stage because
a standard, in terms of engineering features and design choices, has been set across the industry.
Wear Crush Inc. is an apparel company known for its affordable clothes that follows a cost-leadership strategy. In this scenario, Wear Crush should ideally compare its strategic position with
an apparel company popular among price-conscious customers.
Which of the following best illustrates a process innovation as opposed to product innovation?
an automobile company using computer-aided design in its production
True Empire Autos Inc. is an automobile company known for its luxury cars and follows a differentiation strategy. In this scenario, True Empire Autos should ideally compare its strategic position with a(n)
automobile company that sells high-end, premium cars.
Body Sync Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 12 months by paying only for 10 months. Included in the package are two health checkups and a gym kit. These add-ons by themselves are not very valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Body Sync's primary value driver is
availability of complements.
When Internet service providers offer free routers for subscriptions to their wirelessInternet packs, the perceived value of the service offering increases. In this case, the value driver would be
availability of complements.
Bargain Styles Inc. is an apparel company that caters to the highly price-conscious customers. Through its simple apparel designs, acceptable quality levels, and minimal customer service, the company has been able to sell its merchandise at the lowest prices in the industry. Which of the following generic business strategies is Bargain Styles applying?
cost-leadership
Both Blue Horizons Electronics Inc. and CLR Inc. have achieved cost parity in the television market. To gain and sustain a competitive advantage against CLR, Blue Horizons Electronics should
create greater perceived economic value than CLR.
Firms pursuing a differentiation strategy primarily seek to
create higher customer perceived value than the value that competitors create.
In a focused cost-leadership strategy, a firm
delivers low-cost products and services to a specific, narrow part of the market.
Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than its competitors. Yet, the supermarket chain has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Home Smart adopted in this scenario?
differentiation
A company that uses a differentiation strategy can achieve a competitive advantage as long as its
economic value created is greater than that of its competitors.
Even without differentiation parity, a firm pursuing a cost-leadership strategy can still gain a competitive advantage as long as its
economic value creation exceeds that of its competitors.
A firm pursuing a differentiation strategy as opposed to a low-cost strategy will
focus its research and development on product technologies to add uniqueness.
Organic Eats is a restaurant that caters to the needs of a small percentage of highly health-conscious consumers. It has an all-organic, vegan menu. Since there are very few restaurants that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Organic Eats is following a
focused differentiation strategy.
When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it
gains market share from other firms.
Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on
increasing the perceived value created for customers, which allows it to charge a premium price.
A firm achieves differentiation parity ideally when
it creates the same customer value as its competitors.
Which of the following will hamper a differentiator's ability to achieve a competitive advantage?
lower value gap
A firm's business strategy will lead to a competitive advantage if it allows the firm to
perform different activities than its rivals.
Oviyo Inc. has been successful at differentiating itself from competitors by claiming a premium price for its digital cameras based on superior image quality and advanced technology. In this scenario, which of the following is the key value driver?
product features
From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the
return on risk capital.
The ratio Cost of goods sold/Revenue indicates how efficiently a company can
sell a good.
The key objective for firms during the growth phase is to
stake out a strong strategic position not easily imitated by rivals.
Return on risk capital primarily includes
stock price appreciation plus dividends received over a specific period.
When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in
strategic trade-offs.
A high percentage of R&D/Revenue ratio indicates a(n)
strong focus on innovation to improve current products and services.
Lush Roses is a chain of premium hotels around the globe that charges higher prices for its rooms and suites when compared to the average industry standards. Yet, the hotel enjoys the largest market share in the industry. This is mainly due its highly responsive staff that has a strong commitment toward achieving a 100 percent guest satisfaction. In this scenario, which of the following is the key value driver?
superior customer service
Which of the following is more of a value driver than a cost driver?
superior customer service
Value drivers contribute to a firm's competitive advantage only if
the increase in value creation exceeds the increase in costs.
Which of the following is a firm effect that has an impact on the competitive advantage of a firm?
the value and the cost position of the firm relative to its competitors
Which of the following is an external performance metric?
total return to shareholders