CH02 Flashcards
- The main challenge of establishing the goal of the firm is that:[See p.35]
a. Flexibility of accounting rules allow different firms to measure profit in different ways
b. Each firm has different set of stakeholders, hence will define stakeholder value differently
c. Each enterprise has a distinct business purpose
d. The goal of the firm is not directly observable
c
- The two processes through which firms create value are:[See p.35]
a. Restructuring existing businesses and creating new businesses through entrepreneurship
b. Increases prices and reducing costs
c. Production and commerce
d. Production to create real value and marketing to create perceived value
c
- Consumer surplus is equal to :[See p.36]
a. The amount consumers pay for a product
b. The difference between the amount consumers would be willing to pay for a product and what they actually pay
c. The difference between the sales value of a firm’s output and the direct costs of producing it
d. The amount consumers pay for a product adjusted for the social costs and benefits of the product.
b
- For the purposes of strategy analysis, it is convenient to view business strategy is primarily a quest for:[See p.38]
a. Attractive markets
b. Profit
c. Customer loyalty
d. Motivated and talented personnel
b
The main problems in implementing stakeholder value maximization are:[See pp.37-38]
a. Adjudicating conflicts between different stakeholders
b. The propensity for customers and employees to be even more short-term oriented than shareholders
c. The difficulties of quantifying value creation and creating a governance system to manage the trade-offs among the interests of different stakeholders.
d. The legal obligation of boards of directors to operate companies in the interests of their shareholders.
c
- Although firms may pursue a variety of goals, the assumption that primary goal of strategy is to maximize profits over the long term may be justified by:[See p.38]
a. The fact that in today’s intensely competitive markets, firms must focus on profit maximization in order to survive
b. The external pressures on firms that arise from (i) strong competition in product markets and (ii) the threat that firms that do not maximize profits will be acquired by firms that do
c. The legal requirement on Boards of Directors to ensure that companies are operated in the interests of their shareholders
d. Shareholder pressure on CEOs to maximize profits
b
- The main difference between accounting measures of firm performance and stock-market measures of firm performance is: [See pp.42-43]
a. Accounting measures are less reliable because of firms’ discretion over how they apply accounting conventions
b. Stock market measures are less reliable because share prices are so volatile
c. Accounting data offers a sound basis for forecasting future performance
d. Accounting measures are backward looking; stock market measures are forward looking
d
Maximizing enterprise value and maximizing shareholder value are closely linked because:[See p.40]
a. Enterprise value and shareholder value are the same thing
b. Shareholder value is calculated by adding debt and other non-equity financial claims to the DCF value of the firm
c. Shareholder value is calculated by subtracting debt and other non-equity financial claims from the enterprise value of the firm
d. A business enterprise is owned by its shareholders
c
In using accounting ratios to appraise a firm’s performance, it is helpful to use:[See pp.42-43]
a. Benchmarks
b. Trends in these ratios over the past 5 years or more
c. Multiple indicators
d. All of the above
d
The biggest problem in designing a performance management system arises as a result of:[See p.47]
a. The tendency for performance management systems to be based entirely on financial targets
b. A performance management system needs short-term indicators to monitor performance, yet the ultimate goal is to enhance the long-term performance of the firm
c. Performance targets are always ineffective because individuals will “game the system”
d. The personal interests of organizational members need to be taken into account
b
The Balanced Scorecard is a technique of performance management that establishes and monitors four dimensions of performance:[See pp.47-48]
a. Financial, strategic, operational, and ethical performance
b. Financial, customer, internal, and learning/innovation performance
c. Profit, sales, productivity, and asset management performance
d. Shareholder, customer, employee, supplier, and social performance
b
In new product development, a “phases and gates” approach means that:[See p.54]
a. A firm’s market is divided into specific segments (or “phases”) linked by “gates” which allow synergies tobe exploited
b. A firm’s product development relies on time segments that must be linked through gates
c. The process is divided into consecutive stages, at the end of each a decision is made as to whether to continue to the next stage of development
d. The product is divided into separate modules where the interface between them are viewed as gates
c
Viewing strategy as a portfolio of options rather than a portfolio of investments, relies upon the rationale that:[See pp.54-55]
a. Uncertainty means that flexibility is valuable
b. Committing to a long-term program of investment can be disastrous if circumstances change
c. Most investment projects can be divided into a sequence of stages where, at any point of time, it is only necessary to decide the next stage
d. All of the above
d
The two main categories of real options are growth options and flexibility options. Which of the following investments is not a growth option?[See pp.54-55]
a. Ford’s acquisition of programmable robots that allow different models of car to be produced on a singleassembly line
b. Facebook’s acquisition of WhatsApp 2014
c. Apple’s program of research into virtual reality
d. Callaway Golf’s strategic alliance with Automobili Lamborghini to develop new composite materials
a
