MGT449 Chapter 5

Which of the following statements is true of the balanced scorecard? A) Its primary focus is to base a firm's strategic goals entirely on external performance dimensions. B) It is one of the traditional approaches of measuring firm performance. C) It attempts to provide a holistic perspective on firm performance. D) It is a more or less a one-dimensional metric of measuring competitive advantages of a firm.

C

________ are best described as the value of the best forgone alternative use of the resources employed. A) Social costs B) Switching costs C) Opportunity costs D) Variable costs

C

________ are the legal owners of public companies. A) Employees B) Creditors C) Shareholders D) Category captains

C

How does a firm capture its producer surplus for a good or service? A) As profit per unit sold B) As cost per unit sold C) As market price per share D) As earnings per share

A

Competitive advantage goes to the firm that achieves the: A) largest economic value created. B) highest payable turnover. C) lowest producer surplus. D) highest Cost of goods sold/Revenue ratio.

A

In an economic context, strategy for producers is primarily about: A) capturing the economic value created as much as possible. B) lowering producer surplus and increasing consumer surplus. C) distributing the economic value created equally between consumers and themselves. D) reducing the difference between consumer's willingness to pay for a product and the cost to produce it.

A

The difference between the price charged for a product and the cost to manufacture it is referred to as the ________. A) producer surplus B) consumer surplus C) break-even price D) reservation price

A

The value a consumer attaches to a product or service is captured in the: A) consumer's maximum willingness to pay for it. B) difference between the price charged for it and the cost to produce it. C) expenses incurred by the firm in manufacturing it. D) least price a consumer is willing to pay for it.

A

Unlike the financial ratios based on accounting data, total return to shareholders is: A) an external performance metric. B) backward-looking and historic in nature. C) an absolute measure of competitive advantage. D) unaffected by market volatility or macroeconomic factors.

A

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? A) 2, that is, $600,000/$300,000 B) 3, that is, $600,000/$200,000 C) $300,000, that is, $600,000 - $300,000 D) $100,000, that is, $300,000 - $200,000

B

A high percentage of R&D/Revenue ratio indicates a(n): A) strong focus on marketing and sales to promote products and services. B) strong focus on innovation to improve current products and services. C) negligent investment toward research and development. D) inefficiency in the management to focus on new products.

B

The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data suggest? A) For every $6.00 Tesva Systems puts to work, the company realizes a sales of $1.00. B) For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales. C) For every dollar Tesva Systems puts to work, the company realizes $6.00 in loss. D) For every $6.00 Tesva Systems puts to work, the company incurs a cost of $1.00.

B

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 balanced scorecard B) The triple-bottom-line approach C) The accounting profitability approach D) The economic value creation framework

B

Which of the following competitively important assets is typically excluded from a firm's balance sheet? A) Accounts payable B) Customer experience C) Land and building D) Patents

B

________ denotes the dollar amount a consumer would attach to a good or service. A) Utility B) Value C) Economic contribution D) Consumer surplus

B

________ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors. A) Inventory turnover B) Payables turnover C) Assets turnover D) Receivables turnover

B

A firm has 30 million shares outstanding, and each share is traded at $100. Also, each shareholder gets a dividend of $2000 annually. In this case, the market capitalization is ________. A) $200,000, that is, $2000 × $100 B) 30,000 shares, that is, 30 million shares/$100 C) $3 billion, that is, 30 million shares × $100 D) 20:1, that is, $2000/$100

C

By selling a laptop at $1000 for which consumers are willing to pay up to $1200, a consumer electronics firm makes a profit of $400 per unit. In this scenario, the amount $600, that is ($1200 - $1000) + $400, is the ________. A) opportunity cost B) consumer surplus C) economic value created D) reservation price

C

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: A) increasing its fixed costs and decreasing its variable costs. B) lowering its inventory turnover. C) driving down its costs. D) reducing its return on revenue.

C

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? A) The firm's total return to shareholder is $5 billion. B) The firm's economic value created is $5 billion. C) The firm's number of outstanding shares is 25 million. D) The firm pays an annual dividend of 10 percent.

C

True Machine Inc. and One Electrona Inc. are two competing consumer electronics companies. While True Machine's COGS/Revenue is 66%, One Electrona's is 74%. What do you infer from this financial data? A) One Electrona has a competitive advantage over True Machine. B) One Electrona is more efficient than True Machine by eight percentage points. C) True Machine's profit margin is higher than that of One Electrona. D) True Machine should focus more on driving down costs, while increasing revenues, and One Electrona should focus more on increasing its fixed asset turnover.

C

Using the ________ approach, managers audit their company's fulfillment of its social and ecological obligations to stakeholders such as employees, customers, suppliers, and communities as conscientiously as they track its financial performance. A) accounting profitability B) shareholder value creation C) triple-bottom-line D) economic value creation

C

When GD Inc. 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 GD Inc.'s ________. A) producer surplus B) social cost C) opportunity cost D) consumer surplus

C

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? A) $200 B) $100 C) $250 D) $180

D

Which of the following equations best expresses return on revenue? A) Net profits/Revenue B) Sales/Revenue C) Revenue - Gross profits D) Revenue - Cost

A

Which of the following is NOT an accurate expression of the economic value created per unit of a product sold? A) The difference between the price charged and the firm's cost B) The sum of consumer surplus and firm profit C) The difference between consumer's reservation price and firm's cost D) The sum of consumer surplus and producer surplus

A

Which of the following is NOT true of risk capital? A) Risk capital invested in a firm can be legally recovered if the firm goes bankrupt. B) Return on risk capital includes stock price appreciation plus dividends received over a specific period. C) A person who provides capital to a firm gets equity shares in return. D) From the shareholders' perspective, the measure of competitive advantage is primarily based on return on their risk capital.

A

Both Vibrant Phones Inc. and Oryxo Inc. incur a cost of $200 to manufacture a single unit of a cell phone. However, Vibrant Phones creates more economic value than what Oryxo does. What does this imply? A) Oryxo has a competitive advantage over Vibrant Phones. B) Vibrant Phones sells its products at a better price than Oryxo. C) Oryxo's offering has greater total perceived consumer benefits than Vibrant Phones' offering. D) Vibrant Phones and Oryxo have achieved a competitive parity.

B

Economic value creation is best expressed as ________. A) producer surplus minus consumer surplus B) consumer surplus plus firm profit C) producer surplus plus firm profit D) consumer surplus minus cost of production

B

The fixed asset turnover of a company is 8.3. What do you infer from this? A) The cost of capital invested on fixed assets is 8.3% of the total profit. B) Every dollar spent on the company's fixed assets generates $8.30 of revenue. C) The return on fixed assets will break even in 8.3 years. D) 8.3% of the company's revenue is invested in fixed assets.

B

The top management at BioTrue 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 Bio True Pharma are applying the ________ approach to measure firm performance. A) accounting profitability B) triple bottom line C) economic value creation D) shareholder value creation

B

The translation of strategy into action primarily takes place in a firm's ________. A) mission statement B) business model C) code of conduct D) executive summary

B

________ 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) Break-even point B) Economic value created C) Consumer surplus D) Cost of capital

B

________ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE). A) Working capital turnover B) Fixed asset turnover C) Capital leverage ratio D) Fixed assets to equity ratio

B

________ indicates how fast a firm is collecting the credit amount extended by a firm to its customers. A) Payables turnover B) Assets turnover C) Receivables turnover D) Inventory turnover

C

________ precisely indicates how much of a firm's sales is converted into profits. A) Break-even price B) Return on revenue C) Inventory turnover D) Working capital turnover

B

From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the ________. A) consumer surplus B) inventory turnover C) economic value created D) return on risk capital

D

In order to achieve a competitive advantage, a firm should be able to: A) keep its producer surplus low. B) increase the difference between consumer surplus and its profits. C) increase its payable turnover. D) increase the difference between the value created and the cost to produce it.

D

Return on risk capital primarily includes: A) account receivables plus account payables. B) economic value created by a firm plus reservation price. C) consumer surplus plus firm profit. D) stock price appreciation plus dividends received over a specific period.

D

Which of the following is an external performance metric? A) Total return to shareholders B) Inventory turnover C) Return on revenue D) Fixed assets turnover

A

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 ________. A) economic value created B) consumer surplus C) total return to shareholders D) customer lifetime value

A

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? A) $10,000 B) $200,000 C) $2,000 D) $7,000

A

Which of the following ratios best expresses inventory turnover? A) Cost of goods sold/Inventory B) Inventory/Working capital C) Inventory/Per unit cost of production D) Annul profits/Inventory

A

Which of the following statements is true of accounting data? A) Accounting data are historical data and thus backward-looking. B) Accounting data consider off-balance sheet items, such as pension obligations of a firm. C) Accounting data do not have to be adjusted in any manner to compare companies with different capital structures. D) Accounting data focus mainly on intangible assets, rather than tangible assets.

A

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? A) The firm's cost (C) in manufacturing the dress B) The value (V) the consumer attaches to the dress C) The producer surplus D) The consumer surplus

B

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? A) $900 B) $200 C) $550 D) $1100

B

Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization? A) These tools fail to indicate how the stock market views all available public information about a firm's expected future performance. B) Market volatility makes it difficult to assess firm performance through these measures, particularly in the short term. 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.

B

Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance? A) It is the most efficient tool for assessing corporate-level competitive advantage of highly diversified companies with large product portfolios. B) In economic value perspective, analysts not only consider historical costs, but also opportunity costs. C) Arriving at the economic value created is easy because determining the value of a good in the eyes of consumers is a simple task. D) When the need for "hard numbers" arises, managers and analysts rely on economic value creation perspective to measure competitive advantage.

B

Samantha 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 Samantha's ________. A) social cost B) reservation price C) opportunity cost D) break-even price

C

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? A) How do shareholders view us? B) What core competencies do we need? C) How do we reduce the economic value created? D) How do customers view us?

C

Which of the following expressions accurately describes market cap? A) It is the difference between a firm's account receivables and account payables. B) It is the ratio of a firm's equity finance and its debt finance. C) It is the product of the number of outstanding shares and the share price. D) It is the difference between the book value and the market value of a firm's assets.

C

Which of the following is NOT a limitation of the economic value creation framework? A) The framework cannot be effectively applied for assessing corporate-level performance of diversified conglomerates. B) The framework falls short when managers are called upon to operationalize competitive advantage. C) The framework fails to provide the foundation that will help firms decide between cost-leadership or differentiation strategies. D) The framework is not as effective as accounting profitability or shareholder value creation when the need for "hard numbers" arises.

C

Which of the following statements is true of the triple bottom line? A) Its primary focus is to base a firm's strategic goals entirely on external performance dimensions. B) According to this approach, achieving positive results in any one of the dimensions, economic, social, and ecological, can lead to a sustainable strategy. C) Three dimensions, economic, social, and ecological, make up the triple bottom line. D) It is more or less a one-dimensional metric of measuring competitive advantage of a firm.

C

Osion Electronics Inc. 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? A) $800 B) $350 C) $200 D) $450

D

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: A) BlackBerry can extend its payment periods, while Apple is required to pay its creditors more quickly. B) BlackBerry has a clear advantage over Apple as its credits are paid much faster than that of Apple. C) BlackBerry has taken a longer time to pay its creditors as compared to Apple. D) Apple has been more efficient than Blackberry in paying creditors and generating interest-free loans from suppliers.

D

The receivables turnover of GD Products Inc. is 13.6 and that of its competitor, AP Goods Inc., is 6.0. What does this financial data primarily imply? A) GD Products is less efficient than AP Goods in collecting accounts receivables. B) AP Goods has a larger value gap as compared to GD Products. C) AP Goods pays its creditors more quickly as compared to GD Products. D) GD Products collects accounts receivables faster than what AP Goods does.

D

Which of the following best expresses fixed asset turnover? A) Fixed assets/Total return to shareholders B) Fixed assets/Current liabilities C) Current assets/Fixed assets D) Revenue/Fixed assets

D

Which of the following is NOT an advantage of the balanced scorecard approach to assess firm performance? A) It helps managers to implement feedback and organizational learning in order to modify and adapt strategic goals when indicated. B) It provides a concise report that tracks chosen metrics and measures and compares them to target values. C) It allows managers to communicate and link the strategic vision to responsible parties within an organization. D) It is a tool which can be effectively used by managers for both strategic implementation and strategic formulation.

D

Which of the following is an advantage of the balanced scorecard? A) The balanced scorecard is independent of the skills of the managers responsible for its implementation. B) Its implementation is a one-time effort and does not require continuous tracking of metrics or updating of strategic objectives. C) It is a tool for both strategic formulation and strategic implementation. D) It allows managers to translate a firm's vision into measurable operational goals.

D

________ is best described as a measure of how effectively capital is being used by a firm to generate revenue. A) Revenue per employee B) Risk capital C) Return on revenue D) Working capital turnover

D