Ch. 5 MGMT 4335
Our understanding of the firm's purpose has shifted over time. Place the views of the firm's purpose in historical order, with the most recent view at the top.
1. creating shared value 2. pursuing corporate social responsibility 3. maximizing profits
The Luminarium Corporation has a market capitalization of $100,000,000, and each share is worth $100. How many outstanding shares of Luminarium Corporation are there?
100,000,000/100 = 1,000,000
Which of the following statements about the disadvantages of the accounting profitability perspective are correct? Accounting data are historical and therefore backward-looking. Accounting data focus mostly on intangible assets. Accounting data are highly volatile and thus difficult to use. Accounting data focus primarily on tangible assets.
Accounting data are historical and therefore backward-looking. Accounting data focus primarily on tangible assets.
Which of the following statements about the disadvantages of the accounting profitability perspective are correct? Accounting data focus mostly on intangible assets. Accounting data are highly volatile and thus difficult to use. Accounting data are historical and therefore backward-looking. Accounting data focus primarily on tangible assets.
Accounting data are historical and therefore backward-looking. Accounting data focus primarily on tangible assets.
True or false: The best measure of competitive advantage can be found in the performance of specific departments.
False Reason: Recall that criteria reflecting overall business unit performance provide the best measure of competitive advantage.
True or false: Stock market valuations are often unreliable due to market fluctuations and are therefore not used to assess competitive advantage.
False Reason: Viewed over the long term, stock market valuations provide a useful metric for assessing competitive advantage.
If Firm A and Firm B both produce a laptop at the same total cost, but the reservation price for Firm A's laptop is $1,000 and the reservation price for Firm B's laptop is $1,200, who has the competitive advantage?
Firm B Reason: The reservation price is the absolute maximum one would be willing to pay for the laptop. In this case, people are willing to pay a higher maximum price for Firm B's laptop while it doesn't cost Firm B more to produce it. Hence, Firm B is able to create more economic value and therefore has the competitive advantage.
Which statements about the disadvantages of the value creation perspective are true? For large firms, it is difficult to estimate the economic value created for all products and services offered by the firm. It is difficult to determine the value that consumers place on a given good. The value that a consumer places on a good can vary according to how the consumer feels at a particular moment. The meaning of value creation differs between services and products.
For large firms, it is difficult to estimate the economic value created for all products and services offered by the firm. It is difficult to determine the value that consumers place on a given good. The value that a consumer places on a good can vary according to how the consumer feels at a particular moment.
hich of the following are the key questions for understanding the balanced scorecard? How do customers view us? What core competencies do we need? How do shareholders view us? How do we create value? What are the optimal prices of our products and services?
How do customers view us? What core competencies do we need? How do shareholders view us? How do we create value?
At 3M, one strategic objective that has been implemented is that 30% of revenues must be obtained from new product introductions. This is an objective that would arise as an answer to which of the following balanced scored questions? How do customers view us? How do shareholders view us? What core competencies do we need? How do we create value?
How do we create value?
Which of the following is true about a sustainable strategy for a business? It is designed to serve as a temporary business strategy. It is a strategy that can be pursued over time without harmful effects on people or the environment. It is a replacement of the strategy of pursuing the triple bottom line. It places greater emphasis on the dimensions of people and planet than profits.
It is a strategy that can be pursued over time without harmful effects on people or the environment.
Which of the following are considered disadvantages of the shareholder value creation approach? Stock prices are influenced by the psychological mood of investors. Overall macroeconomic factors have a direct bearing on stock prices. Stock prices can be highly volatile. The approach takes into account the past and present as well as future expectations.
Stock prices are influenced by the psychological mood of investors. Overall macroeconomic factors have a direct bearing on stock prices. Stock prices can be highly volatile.
Which of the following statements is true about a firm's stock price? The price is calculated exactly from the firm's accounting profitability. The price is not correlated with the firm's economic value creation. The price tends not to reflect accounting profitability. The price determines in part the stock's market valuation.
The price determines in part the stock's market valuation.
Which of the following correctly describe the information used for comparing the performance of public companies based on accounting profitability? The relative performance is evaluated using standardized financial metrics. The information is derived from such data as income statements and balance sheets. The information must be purchased from private investment banks. The information is filed in a 10-K report.
The relative performance is evaluated using standardized financial metrics. The information is derived from such data as income statements and balance sheets. The information is filed in a 10-K report.
Which of the following is true about shareholders of a public company? Those qualified as owners must own at least 100 shares. They can be individuals or organizations. They are eligible to be elected as owners of the company. They must be individuals who are employed by the company.
They can be individuals or organizations.
Which statements correctly describe the ESG criteria? They identify customers as the most important stakeholders. They evaluate firms on standards that go beyond financial results. They help firms clearly identify the best sustainable strategy. They include environmental, social, and governmental aspects.
They evaluate firms on standards that go beyond financial results. They include environmental, social, and governmental aspects.
Which statements correctly describe the ESG criteria? They identify customers as the most important stakeholders. They evaluate firms on standards that go beyond financial results. They include environmental, social, and governmental aspects. They help firms clearly identify the best sustainable strategy.
They evaluate firms on standards that go beyond financial results. They include environmental, social, and governmental aspects.
Which statements about stock market valuations are true? Stock market valuation is the estimated increase in a stock's value during the next fiscal year. Viewed over the long term, stock market valuation is a useful metric for assessing competitive advantage. Stock market valuation is equal to the number of outstanding shares multiplied by the share price. Investors generally take a poor view of stock market valuation because it includes all shares in its calculation.
Viewed over the long term, stock market valuation is a useful metric for assessing competitive advantage. Stock market valuation is equal to the number of outstanding shares multiplied by the share price.
According to the efficient-market hypothesis, information about which of the following is embedded in a stock price? a firm's past expectations of the firm's future performance a firm's current state a firm's political views
a firm's past expectations of the firm's future performance a firm's current state
What type of strategy can be pursued by a firm over the long term that allows it to be profitable without negatively affecting the planet or people?
a sustainable strategy
When competitive advantage is assessed from an analysis of publicly available data, a firm measures its
accounting profitability
Opportunity costs refer to the value of what could have been gained had a person pursued
an alternate use of available resources
What is shareholder capitalism?
an economic system in which the owners of shares in a public company are the company's legal owners and the providers of risk capital
When a person decides to quit their job and start a company, the salary that person gave up when quitting can be considered
an opportunity cost
Companies are required to provide______ to shareholders, which are used in determining a firm's competitive advantage.
benchmarks
Narrowly defining public stock companies in terms of financial performance can lead to
black swan events
When a firm goes bankrupt, shareholders ______.
cannot recover their risk capital
What are the three defining problems faced by capitalism today according to strategy scholar Rebecca Henderson?
climate change economic inequality beleaguered institutions
Which of the following are offered by a balanced scorecard? ways to avoid opportunity costs common financial metrics operational measures on customer satisfaction measures of internal processes
common financial metrics operational measures on customer satisfaction measures of internal processes
Public companies are required by law to release detailed accounting data, which enables
comparative analysis of firms
Achieving competitive advantage means maximizing the difference between which two of the following?
consumers' willingness to pay the cost to produce the good or service
The firm's accounting metrics, ability to create shareholder value, and ability to generate economic value tend to be
correlated
Which of the following would be labeled variable costs by a computer manufacturer? manufacturing facilities the administrative assistant display screens hard drives
display screens hard drives
Which of the following dimensions make up the triple bottom line? Multiple select question. ecological international economic social
ecological economic social
The difference between the cost of producing a product and the price consumers are willing to pay for that product is known as
economic value created
To measure firm-level competitive advantage, a company must
estimate the economic value created for all products and services offered by the firm
Social consequences of business activities, including pollution, energy loss, and dangerous accidents, are known as
externalities
Many strategy scholars argue that the value of public stock companies is too narrowly defined in terms of ______, leading to scandals and economic crises.
financial performance
The money a firm spends to set up a sales website can be considered a
fixed cost
The balanced scorecard framework draws from which of the following? from external metrics only from the same metrics applied to internal resources and the external environment from multiple internal and external performance metrics from internal metrics only
from multiple internal and external performance metrics
For a product that has a large economic value, a firm can choose to charge the same price as competitors in order to
gain market share
The balanced scorecard framework enables managers to do which of the following? implement feedback and organizational learning communicate and link the strategic vision analyze their competitors' strengths in the market translate the strategic vision into operational goals
implement feedback and organizational learning communicate and link the strategic vision translate the strategic vision into operational goals
Fixed costs are _____ consumer demand.
independent of
A public stock company is considered by law to be an entity with legal rights and obligations. This is known as
legal personality
What are the four characteristics of a public stock company that make it an attractive corporate form?
legal personality limited liability for investors transferability of investor ownership separation of ownership and management control
In order to determine market capitalization, one multiplies which of the following together? value of the dollar number of outstanding shares total market value share price
number of outstanding shares share price
Which of the following are considered off-balance sheet items? owned assets operating leases cash pension obligations
operating leases pension obligations
When a firm does favorably compared to similar firms, it is said to
outperform
In order to be considered a legal owner of a public company, a person or organization must
own at least one share of the company's stock
To determine a product's producer surplus, which of the following must be compared? price charged total cost of production sunk costs the overhead costs
price charged total cost of production
If a firm has a successful _____ strategy, its product will have a higher perceived value and the firm will have a competitive advantage over a competitor that creates a product at equal cost but with a lower reservation price.
product differentiation
Another name for producer surplus is
profit
Return on invested capital, return on assets, and return on revenue are examples of the______ most commonly used in strategic management to conduct direct performance comparisons between different companies.
profitability ratios
The 3 P's of the triple bottom line
profits, people, planet
Which of the following performance dimensions matter in judging the effectiveness of a firm's strategy? Multiple select question. international natural qualitative quantitative
qualitative quantitative
The subjectively determined maximum amount a customer would pay for a product is its
reservation price
Which of the following are among the most commonly used metrics for comparing the performance of different companies? return on revenue return on equity return on strategic intent return on invested capital return on assets
return on revenue return on equity return on invested capital return on assets
From the view of a shareholder, the measure of competitive advantage that matters most is return on
risk capital
The economic system in which the owners of shares in a public company are the company's legal owners and the providers of risk capital is called
shareholder capitalism
The shared value creation framework encourages managers to focus on which of the following needs? social emotional economic spiritual
social economic
When a trade occurs, the consumer and producer both capture
some of the economic value
Which of the following would provide the best benchmark of a computer firm's performance relative to other high-tech firms? the S&P 500 the NASDAQ computer index the value of the yen the Dow Jones Industrial Average
the NASDAQ computer index
When managers analyze a wide variety of internal and external performance metrics in order to set financial and strategic goals, they often turn to a framework known as
the balanced scorecard
Economic value creation is calculated as
the sum of consumer and producer surplus
In their annual filing with the Securities and Exchange Commission, public companies in the United States must report which of the following? the total return to shareholders benchmarks the return for each individual shareholder expected share prices in the next fiscal year
the total return to shareholders benchmarks
The most a consumer is willing to pay for a product is equivalent to the product's
total perceived consumer benefits
Because external factors create volatility in stock prices, a better measure of a firm's performance over the long term is the
total return to shareholders
Investors in a company are mostly concerned about the company's
total return to shareholders
