Question 1

Profit maximization and value of the firm are two concepts which are:

Accepted Answer

A) Unrelated because cash flow is only one component of the firm's value 
B) Closely linked because profit maximization translates into maximizing the firm's value 
C) Unrelated because Net Present Value is used to assess the value of the firm 
D) Closely linked because the value of a firm is the sum of its free cash flows in each year discounted at the firm's interest rate 
A) Unrelated because cash flow is only one component of the firm's value 
B) Closely linked because profit maximization translates into maximizing the firm's value 
C) Unrelated because Net Present Value is used to assess the value of the firm 
D) Closely linked because the value of a firm is the sum of its free cash flows in each year discounted at the firm's interest rate B

Question 2

Enron and WorldCom are examples of:

Accepted Answer

A) Corporate scandals that have undermined the confidence into corporations and top managers' behaviors and have contributed to many improvements of firms' corporate governance systems 
B) Corporate scandals where top managers had self-serving behaviors 
C) Corporate scandals that are unavoidable in the business world and should not have any impact on corporate governance systems 
D) a AND b 
A) Corporate scandals that have undermined the confidence into corporations and top managers' behaviors and have contributed to many improvements of firms' corporate governance systems 
B) Corporate scandals where top managers had self-serving behaviors 
C) Corporate scandals that are unavoidable in the business world and should not have any impact on corporate governance systems 
D) a AND b A

Question 3

How can "motivation" partially explain the paradox of profit?

Accepted Answer

A) Sustained profits arise from co-ordinated efforts from a motivated workforce, most of whom, have significant non-monetary motives alone 
B) Because top managers are not likely to be motivated to increase stockholders' return 
C) Vision and mission are the most important drivers of success in an organization 
D) Motivation does not explain at all the "paradox of profit" 
A) Sustained profits arise from co-ordinated efforts from a motivated workforce, most of whom, have significant non-monetary motives alone 
B) Because top managers are not likely to be motivated to increase stockholders' return 
C) Vision and mission are the most important drivers of success in an organization 
D) Motivation does not explain at all the "paradox of profit" A

Question 4

The value of a firm is defined as:

Accepted Answer

A) The sum of its free cash flows in each year, discounted at the firm's weighted average cost of capital (WAC
C)  
B) The sum of its cash flows in each year, discounted at the firm's cost of capital 
C) The sum of its free cash flows in each year, discounted at the average cost of debt 
D) The sum of its cash flows in each year, discounted at the rate provided by the Federal Bank of each firm's home country on a permanent basis 
A) The sum of its free cash flows in each year, discounted at the firm's weighted average cost of capital (WAC
C)  
B) The sum of its cash flows in each year, discounted at the firm's cost of capital 
C) The sum of its free cash flows in each year, discounted at the average cost of debt 
D) The sum of its cash flows in each year, discounted at the rate provided by the Federal Bank of each firm's home country on a permanent basis

Question 5

The "finance-inspired" theory of Real Options has emerged in strategic management and is used by strategy analysts. Why? What is its contribution?

Accepted Answer

The ability of preserving flexibility an

Question 6

Which ratio is closest to the "Return On Invested Capital (ROIC)" ratio?

Accepted Answer

A) Operating Margin 
B) Return on Assets (RO
A)  
C) Return on Capital Employed (ROC
E)  
D) Net margin 
A) Operating Margin 
B) Return on Assets (RO
A)  
C) Return on Capital Employed (ROC
E)  
D) Net margin

Question 7

To use the Discounted Cash Flow method, the future cash flows have to be forecasted. To determine these estimates management will :

Accepted Answer

A) Make justified assumptions about income, expenses, profit and all other significant figures 
B) Use a benchmarking approach to align the firm's cash flows with its rivals' cash flows 
C) Use accounting data and directly extrapolate from the past the future cash flows 
D) Reach consensus by discussion with a group of external experts such as stockbrokers 
A) Make justified assumptions about income, expenses, profit and all other significant figures 
B) Use a benchmarking approach to align the firm's cash flows with its rivals' cash flows 
C) Use accounting data and directly extrapolate from the past the future cash flows 
D) Reach consensus by discussion with a group of external experts such as stockbrokers

Question 8

The two concepts of profit used in the text are:

Accepted Answer

A) Normal return to capital and abnormal return of capital 
B) Return to capital and economic profit 
C) Accounting profit and economic profit 
D) Accounting rent and economic rent 
A) Normal return to capital and abnormal return of capital 
B) Return to capital and economic profit 
C) Accounting profit and economic profit 
D) Accounting rent and economic rent

Question 9

Business is fundamentally about:

Accepted Answer

A) Making customers satisfied and happy 
B) Creating value 
C) Satisfying all stakeholders 
D) Respecting laws and regulations 
A) Making customers satisfied and happy 
B) Creating value 
C) Satisfying all stakeholders 
D) Respecting laws and regulations

Question 10

A key merit of long-term profit maximization as a prime goal is its:

Accepted Answer

A) Simplicity 
B) Consistency over time 
C) Tendency to optimise long-term survival 
D) All of the above 
A) Simplicity 
B) Consistency over time 
C) Tendency to optimise long-term survival 
D) All of the above

Question 11

To survive and generate profit over the long run requires a firm to:

Accepted Answer

A) Focus on revenue maximisation 
B) Be responsive to evolving customer needs and to relevant changes in the wider political, economic, social and technological environment 
C) Choose a low cost strategy and a differentiation strategy simultaneously 
D) Put emphasis on its top managers' behaviors and ethics 
A) Focus on revenue maximisation 
B) Be responsive to evolving customer needs and to relevant changes in the wider political, economic, social and technological environment 
C) Choose a low cost strategy and a differentiation strategy simultaneously 
D) Put emphasis on its top managers' behaviors and ethics

Question 12

A firm's Value added is the difference between the value of its outputs sold on a market (sales) and all the costs of the inputs employed by the firm to provide these outputs

Accepted Answer

A) True 
 B)False

Question 13

EVA has transformed drink giant Diageo:

Accepted Answer

A) To measure performance 
B) To allocate capital 
C) To evaluate its managers 
D) All of the above 
A) To measure performance 
B) To allocate capital 
C) To evaluate its managers 
D) All of the above

Question 14

Short term maximization of profit will always lead to long term profit maximization and, therefore, to the maximization of the firm's value

Accepted Answer

A) True 
 B)False

Question 15

The final step when applying enterprise value analysis to the evaluation of business strategies is:

Accepted Answer

A) The estimation of cash-flows generated by the business for the next 10 years 
B) The identification of alternative strategies 
C) The identification of the influence of each strategy on the firm's cost of capital 
D) The ranking of the alternative strategies in descending order of NPV value 
A) The estimation of cash-flows generated by the business for the next 10 years 
B) The identification of alternative strategies 
C) The identification of the influence of each strategy on the firm's cost of capital 
D) The ranking of the alternative strategies in descending order of NPV value

Question 16

William Allen's two conceptions of the public corporation entity are:

Accepted Answer

A) The profit conception and the not-for-profit conception 
B) The property conception and the social entity conception 
C) The public conception and the state-owned conception 
D) The service to customer conception and the shareholder conception 
A) The profit conception and the not-for-profit conception 
B) The property conception and the social entity conception 
C) The public conception and the state-owned conception 
D) The service to customer conception and the shareholder conception

Question 17

How can a firm set its performance goals?

Accepted Answer

A) By setting performance targets that are consistent with long term goals 
B) By setting performance targets which relate to matters over which managers exert significant control 
C) By setting performance targets that are linked to strategy 
D) All of the above 
A) By setting performance targets that are consistent with long term goals 
B) By setting performance targets which relate to matters over which managers exert significant control 
C) By setting performance targets that are linked to strategy 
D) All of the above

Question 18

Michael Porter argues that corporate social responsibility should be addressed by a firm:

Accepted Answer

A) For reasons of reputation, customer expectations and anticipated legislation because it is ultimately in the firm's profit interests 
B) Because there is a "moral imperative" to do so 
C) The owners no longer "own" the firm in a meaningful sense. 
D) Answers a and b 
A) For reasons of reputation, customer expectations and anticipated legislation because it is ultimately in the firm's profit interests 
B) Because there is a "moral imperative" to do so 
C) The owners no longer "own" the firm in a meaningful sense. 
D) Answers a and b

Question 19

The assumption that maximization of shareholder value equates to long-term maximization of profit, is justified partly by "competition" which means that:

Accepted Answer

A) Strong competition erodes profit, so it is always best to operate from a position of strength (high profits) in order to survive the battle 
B) Stronger competition emphasizes the need to create more value and more customer loyalty 
C) Competition plays at the same level across rivals and geographies, and therefore requires profit maximization 
D) Stronger competition increases pressures to expand into other markets thus leading to higher profits 
A) Strong competition erodes profit, so it is always best to operate from a position of strength (high profits) in order to survive the battle 
B) Stronger competition emphasizes the need to create more value and more customer loyalty 
C) Competition plays at the same level across rivals and geographies, and therefore requires profit maximization 
D) Stronger competition increases pressures to expand into other markets thus leading to higher profits

Question 20

How could the assumption of profit maximization be justified?

Accepted Answer

A) The managers of a commercial firm who do not seek profit maximisation are more likely to lose their jobs, so only profit maximisers will survive. 
B) Business scandals such as those that took place at Enron and Ahold prove the wrongness of this assumption; therefore nobody should try to justify it 
C) It cannot be justified and is only an easy and common way to overcoming the difficulty to define the ultimate goal of the firm 
D) It does not need to be justified because it is a basic assumption of business. 
A) The managers of a commercial firm who do not seek profit maximisation are more likely to lose their jobs, so only profit maximisers will survive. 
B) Business scandals such as those that took place at Enron and Ahold prove the wrongness of this assumption; therefore nobody should try to justify it 
C) It cannot be justified and is only an easy and common way to overcoming the difficulty to define the ultimate goal of the firm 
D) It does not need to be justified because it is a basic assumption of business.

Profit maximization and value of the firm are two concepts which are:

Enron and WorldCom are examples of:

How can "motivation" partially explain the paradox of profit?

The value of a firm is defined as:

The "finance-inspired" theory of Real Options has emerged in strategic management and is used by strategy analysts. Why? What is its contribution?

Which ratio is closest to the "Return On Invested Capital (ROIC)" ratio?

To use the Discounted Cash Flow method, the future cash flows have to be forecasted. To determine these estimates management will :

The two concepts of profit used in the text are:

Business is fundamentally about:

A key merit of long-term profit maximization as a prime goal is its:

To survive and generate profit over the long run requires a firm to:

A firm's Value added is the difference between the value of its outputs sold on a market (sales) and all the costs of the inputs employed by the firm to provide these outputs

EVA has transformed drink giant Diageo:

Short term maximization of profit will always lead to long term profit maximization and, therefore, to the maximization of the firm's value

The final step when applying enterprise value analysis to the evaluation of business strategies is:

William Allen's two conceptions of the public corporation entity are:

How can a firm set its performance goals?

Michael Porter argues that corporate social responsibility should be addressed by a firm:

The assumption that maximization of shareholder value equates to long-term maximization of profit, is justified partly by "competition" which means that:

How could the assumption of profit maximization be justified?

The Concept of Strategy

Industry Analysis: the Fundamentals

Further Topics in Industry and Competitive Analysis

Analyzing Resources and Capabilities

Developing Resources and Capabilities

Organization Structure and Management Systems: the Fundamentals of Strategy Implementation

The Nature and Sources of Competitive Advantage

Cost Advantage

Differentiation Advantage

Industry Evolution and Strategic Change

Technology-Based Industries and the Management of Innovation

Competitive Advantage in Mature Industries

Vertical Integration and the Scope of the Firm

Global Strategies and the Multinational Corporation

Diversification Strategy

Implementing Corporate Strategy: Management of the Multibusiness Firm

Current Trends in Strategic Management

Filters

Exam 2: Goals, Values and Performance

Profit maximization and value of the firm are two concepts which are:

Enron and WorldCom are examples of:

How can "motivation" partially explain the paradox of profit?

The value of a firm is defined as:

The "finance-inspired" theory of Real Options has emerged in strategic management and is used by strategy analysts. Why? What is its contribution?

Which ratio is closest to the "Return On Invested Capital (ROIC)" ratio?

To use the Discounted Cash Flow method, the future cash flows have to be forecasted. To determine these estimates management will :

The two concepts of profit used in the text are:

Business is fundamentally about:

A key merit of long-term profit maximization as a prime goal is its:

To survive and generate profit over the long run requires a firm to:

A firm's Value added is the difference between the value of its outputs sold on a market (sales) and all the costs of the inputs employed by the firm to provide these outputs

EVA has transformed drink giant Diageo:

Short term maximization of profit will always lead to long term profit maximization and, therefore, to the maximization of the firm's value

The final step when applying enterprise value analysis to the evaluation of business strategies is:

William Allen's two conceptions of the public corporation entity are:

How can a firm set its performance goals?

Michael Porter argues that corporate social responsibility should be addressed by a firm:

The assumption that maximization of shareholder value equates to long-term maximization of profit, is justified partly by "competition" which means that:

How could the assumption of profit maximization be justified?

The Concept of Strategy

Industry Analysis: the Fundamentals

Further Topics in Industry and Competitive Analysis

Analyzing Resources and Capabilities

Developing Resources and Capabilities

Organization Structure and Management Systems: the Fundamentals of Strategy Implementation

The Nature and Sources of Competitive Advantage

Cost Advantage

Differentiation Advantage

Industry Evolution and Strategic Change

Technology-Based Industries and the Management of Innovation

Competitive Advantage in Mature Industries

Vertical Integration and the Scope of the Firm

Global Strategies and the Multinational Corporation

Diversification Strategy

Implementing Corporate Strategy: Management of the Multibusiness Firm

Current Trends in Strategic Management

Filters