MGT 491 Ch 5 Practice Quiz
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
A firm incurs $100 to manufacture an office table. It fixes the market price of the table as $250, and discounts the price to $200. However, the maximum a person is willing to pay for it is $180. What is the amount of total perceived consumer benefits in this scenario?
$180
Mobius Electronics incurs a cost of $350 to produce one unit of a cell phone. The company's management has priced the product at $600 in the market. Considering the technological advancement of the cell phone, customers perceive its value to be around $800. What is the economic value created in this scenario?
450
Which of the following statements is true of accounting data?
Accounting data are historical data and thus backward-looking.
Which of the following statements correctly compares Apple and Microsoft in 2016?
Apple had a higher return on invested capital than Microsoft.
Which of the following statements is true of the balanced-scorecard?
It attempts to provide a holistic perspective on firm performance
Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?
In economic value perspective, analysts not only consider historical costs, but also opportunity costs.
It is April 2018 and Mark is a novice investor who wants to decide between purchasing shares in EagleCorp or Myna Bird Inc. In fiscal year 2017, EagleCorp's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Myna Bird Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell Mark?
EagleCorp is more likely to create value while Myna Bird Inc. is more likely to destroy value
A company's total asset base consists of its current assets plus plant, property, and equipment (PPE).
False
A firm will always see its stock price appreciate when it demonstrates measurable growth.
False
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.
Which of the following scenarios best illustrates 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.
Happy Foods and General Grains both produce similar puffed rice breakfast cereals. For both companies, the cost of producing a box of cereal is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other?
Increase total perceived consumer benefits through differentiation.
Competitive advantage goes to the firm that achieves the
Largest economic value created
The Lynx Manufacturing Company produces components used in electronic toys. In fiscal year 2017, Lynx earned an accounting profit of $3 million. However, Lynx's production facilities might have also been used to produce components for mobile phones, which would have generated $2 million in revenues and saved the company $500,000 in production costs. Which of the following statements is true?
Lynx earned an economic profit of $500,000.
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.
________ are best described as the value of the best forgone alternative use of the resources employed.
Opportunity costs
________ precisely indicates how much of a firm's sales is converted into profits.
Return on revenue
Which of the following is an advantage of a triple-bottom-line approach?
The approach takes an integrative and holistic view in assessing a company's performance.
________, which is the return on risk capital, includes stock price appreciation plus dividends received over a specific period.
Total return to shareholders
In the why, what, who, and how of business models framework, the why dimension asks "why does the business model create value?"
True
________ is a business model in which the manufacturer sets a fixed price on a product, but the retailer is free to set it's own price.
Wholesale
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.
You are the founder of Shadow Skateboards, and you are considering methods of gaining and sustaining a competitive advantage. Which of the following changes has the best chance of quickly creating a sustainable advantage?
allowing customers to upload their own image designs and help assemble the finished product at retail locations
Mega Media sells books by having salespeople set up appointments with potential customers and give them a sales pitch for the product. When a salesperson sells a book, he or she gets a predetermined percentage commission. This type of business model is called
an agency
Unlike the financial ratios based on accounting data, total return to shareholders is
an external performance metric
How does a firm capture its producer surplus for a good or service?
as profit per unit sold
The balanced-scorecard can accommodate
both short- and long-term performance metrics
The translation of strategy into action primarily takes place in a firm's
business model.
Economic value creation is best expressed as
consumer surplus plus firm profit
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.
crowdsourcing
Which of the following competitively important assets is typically excluded from a firm's balance sheet?
customer experience
Aguilar Industries has produced a new piece of technology that will monitor the soil moisture in a user's garden and send a notification to an app on the user's phone when it is time to water their plants. The goal of this inexpensive technology is to entice users to purchase Aguilar's more expensive automated watering system, so that they can trigger the watering process from the app on their phones. Which business model is most likely to help Aguilar Industries accomplish its goals?
freemium
Cloudlink 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?
freemium
When SW International declared a dividend of $20,000,000, its market value increased from $8 billion to $8.5 billion. However, it lost a chance to reinvest $20,000,000 in the research and development of a new product which would have earned a profit of $200 million. Thus, this $200 million is referred to as SW International's
opportunity cost
Zelda is a recent fashion graduate. She started her own apparel store with an investment of $300,000. In the first year she made a profit of $60,000. If she had taken up a job as a fashion editor for a magazine, she would have earned $50,000 as salary per year. Also, she could have invested her capital, $300,000, in treasury bonds and earned an interest of $12,000. Thus, the amount $62,000 ($50,000 + $12,000) would be Genevieve's
opportunity cost
Polygon 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 Polygon implementing?
razor-razor-blade
From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the
return on risk capital.
What are the three financial ratios that constitute return on revenue, and what do they tell us?
selling, general, & administrative expense/Revenue
A high percentage of R&D/Revenue ratio indicates a(n)
strong focus on innovation to improve current products and services.
Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?
the balanced-scorecard model
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?
the triple-bottom-line approach
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
Which of the following is an external performance metric?
total return to shareholders
During the process of formulating an effective business model, a firm's managers should first
transform their strategy of how to compete into a blueprint of actions and initiatives.
The cost of capital to create a product is a fixed cost because it is
unaffected by consumer demand.
A defining characteristic of the subscription-based business model is that the
user pays for access to a product or service whether he or she uses it during the payment term or not.
A defining characteristic of the pay-as-you-go business model is that the
users pay for only the services they consume.
A manager's only responsibility is to monitor and assess the performance of his or her firm.
False
A sustainable strategy is one that produces a competitive advantage that can be maintained over time.
False
Competitive advantage goes to the firm that maximizes the difference between the cost of producing a good and the retail price that consumers pay.
False
Generally speaking, a firm will create value if its return on invested capital (ROIC) is less than the cost of capital.
False
Once a firm chooses a business model, it must stick with it for the life of the firm.
False
Elena is the CEO of Geode Technologies, a consumer electronics manufacturer. Last year, Geode's return on invested capital (ROIC) was 11.6 percent, while Geode's closest competitor, NorthWest Tech, had an ROIC of 17 percent. Which of the following factors might Elena use to convince investors to invest in Geode rather than NorthWest Tech?
Geode's intangible intensity was 6 percent, while NorthWest Tech's was 3 percent
Which of the following scenarios exemplifies a sustainable strategy under the triple bottom line approach?
Impervious Plastics reformulated its products to eliminate chemicals that were widely used in the industry but were being investigated for their potential negative effects on the environment.
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.
The difference between the price charged for a product and the cost to manufacture it is referred to as the
producer surplus.
________ 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
You are the CEO of a home appliance manufacturing company and have recently undertaken a review of your company's strategy. In comparing your stock market valuation to that of your closest competitor, you note that your firm is currently valued at $50 billion, while your competitor is valued at $40 billion. How should you proceed?
Compare the current valuations with past valuations to determine a trend.
Which of the following statements about competitive advantage is true?
Competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value.
Which of the following is an advantage of the balanced-scorecard?
It allows managers to translate a firm's vision into measurable operational goals
How does a sustainable strategy typically help a firm?
It helps the firm achieve positive results along the social and ecological dimensions.
Which of the following expressions accurately describes market cap?
It is the product of the number of outstanding shares and the share price.
Which of the following is a disadvantage of the balanced-scorecard approach?
It provides limited guidance about which metrics to choose.
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
Erin is the manager of gardening supplies wholesaler SpringTime Inc. The company's vision is to become the leading supplier of gardening materials west of the Mississippi River. In assessing the firm's current state, Erin has determined that the firm could differentiate itself from competitors with an easy-to-use online ordering system and a two-day delivery guarantee. To accomplish this, Erin has determined that SpringTime must spend the next two quarters honing its capabilities for sourcing materials quickly and improving its web development competencies. According to the balanced scorecard approach, what is wrong with Erin's thinking?
She has failed to account for external factors such as customer perceptions and shareholder perceptions
Managers must first develop a strategy that is likely to produce a competitive advantage before implementing a balanced scorecard approach.
True
The efficient market hypothesis suggests that the market price of a firm's stock is an objective indicator of a firm's past, current, and expected future performance.
True
In an economic context, strategy for producers is primarily about
capturing the economic value created as much as possible.
The value a consumer attaches to a product or service is captured in the
consumer's maximum willingness to pay for it
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
Unplug Wireless 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?
pay-as-you-go
The ratio Cost of goods sold/Revenue indicates how efficiently a company can
produce a good.
Return on risk capital primarily includes
stock price appreciation plus dividends received over a specific period.
Shark Fin Golf Club requires its members 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?
subscription-based
The top management at Sunshine Vitamins, through rigorous testing, ensures that the company develops and sells vitamins 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 Sunshine Vitamins are applying the ________ approach to measure firm performance.
triple-bottom-line
The management team for Volcanic Batteries came up with the following vision statement: "Volcanic Batteries 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
triple-bottom-line approach.