Exam 2: Goals, Values and Performance

Estimating a firm's future cash flows is a fairly straightforward task.

Implementing stakeholder value maximization is not inherently more difficult than implementing shareholder value maximization since the decision tools of management can easily be adapted to serve the interests of all the firm's stakeholder groups.

A major problem encountered by firms that adopt the goal of maximizing shareholder value is the tendency to concentrate on increasing short-term profits at the expense of long-term profits.

Real options are a useful tool for thinking about strategic decisions under uncertainty, however, quantitative techniques designed to value financial options (e.g.the Black-Scholes option pricing model) cannot be applied to real options.

"Bottom of the pyramid" initiatives embody the notion that multinational corporations should use a portion of their profits on community-based projects in developing countries.

The value of a real option can be calculated using:

To assess the adequacy of the return on capital employed (ROCE) that a firm earned in its most recent financial year, which of the following would not be an appropriate benchmark:

Michael Porter and Mark Kramer's concept of shared value is based upon the notion that business enterprises should focus, first, on creating value and, second, on distributing that value among different participants (including shareholders and society-at-large).

In new product development, a "phases and gates" approach means that:

The main problems in implementing stakeholder value maximization are:

Since the long term is a series of short terms, short-term profit maximization will always lead to long-term profit maximization.

According to Milton Friedman, the social purpose of a business is to make profit.

The entrepreneurs who create business enterprises are motivated primarily by the desire for personal wealth.

The main problem of a company establishing shareholder value creation as its primary performance goal is:

Maximizing profit over the life of the firm bears no relationship to the goal of maximizing shareholder value.

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:

To diagnose the sources of a firm's poor financial performance, it is useful to:

One implication of real option analysis is that when pursuing a new strategic initiative, there is value in a firm making an irreversible commitment to continuing that initiative.

Disaggregating return on capital employed into sales margin and capital turnover offers a useful starting point for diagnosing firm performance.

The total value created by a firm is equal to: