MGMT 425 MIDTERM - CH 5
return to shareholders
return on risk capital that includes stock price appreciation plus dividends received over a specified period
Return on risk capital primarily includes:
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.
subscription-based
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
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?
$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 _____.
$3 billion, that is, (30 million shares) � ($100)
freemium business model
A business model in which the basic features of a product or service are provided FREE of charge, but the user must pay for PREMIUM services such as advanced features or add-ons.
razor-razor-blade business model
A business model where the initial product is often sold at a loss or given away for free in order to drive demand for complementary goods. The company makes its money on the replacement part as needed.
pay-as-you-go business model
A business model where the user pays for only the services he or she consumes.
subscription-based business model
A business model where users pay for access to a product or service whether they use the product or service during the payment term or not.
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.
From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the _____.
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
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.
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
_____ are best described as the value of the best forgone alternative use of the resources employed.
Opportunity costs
_____ 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
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 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.
Working capital turnover
market capitalization
a firm performance metric that captures the total dollar market value of all of a company's outstanding shares at any given point in time (number of outstanding shares x share price)
The tenet behind the triple bottom line is that:
a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.
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. b. These tools fail to indicate how the stock market views all available public information about a firm's expected future performance. c. These tools measure competitive advantage in absolute terms rather than relative terms. d.Only the book value of the share prices is taken into account when applying these measures, and not the market value.
a. Market volatility makes it difficult to assess firm performance through these measures, particularly in the short term.
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 b. subcription based c. freemium d. pay-as-you-go
a. Razor-razor-blade
According to MiniCase 9, "Competing on Business Models," Google and Microsoft
are competitors even though they use different business models
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.
b. Accounting data are historical data and thus backward-looking.
triple bottom line
combination of economic, social, and ecological concerns that can lead to a sustainable strategy
Threadless is a community-centered online apparel store that leverages user-generated content. The idea is to turn consumers into prosumers, a hybrid between producers and consumers. Members of the Threadless community do most of the work, which they consider fun: They submit T-shirt designs online, and community members vote on which designs they like best. The designs receiving the most votes are put in production, printed, and sold online. It can be said that Threadless uses the _____ technique.
crowdsourcing
profit/producer surplus
difference between price charged (p) and the cost to produce (c), or (p-c).
consumer surplus
difference between the value a consumer attaches to a good or service (v) and what he or she paid for it (p), (v - p)
economic value created
difference between value (v) and cost (c), or (v-c); sometimes also called economic contribution
In the fiscal year 2012, BlackBerry's Cost of goods sold (COGS)/Revenue ratio was higher than that of its competitor, Apple. This implies that BlackBerry needs to work toward:
driving down its costs.
business model
organizational plan that details the firm's competitive tactics and initiates; in short, how the firm intends to make money
efficient market hypothesis
the idea that all available information about a firm's past, current state, and expected future performance is embedded in the market price of the firm's stock
risk capital
the money provided by shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goes bankrupt
opportunity cost
the value of the best forgone alternative use of the resources employed
shareholder value creation
traditional way to measure and assess competitive advantage - create value for shareholders in order to keep an advantage. (shareholder value implies that the ultimate measure of a company's success is the extent to which it enriches shareholders)
accounting profitability
traditional way to measure and assess competitive advantage - use accounting/financial data and ratios derived from publicly available accounting data to measure profitability
A defining characteristic of the pay-as-you-go business model is that the:
users pay for only the services they consume.
Looking again at MiniCase 9, "Competing on Business Models," Google and Microsoft
were not initially competitors but became competitors due to competitive dynamics and industry convergence
