Exam 2: Goals, Values, and Performance

A "phases and gates" approach to new product development is an example of a business process designed to create option value.

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.

The value created by a firm is the value received by the customers for that firm's products,minus the real cost of producing the products.

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:

The two processes through which firms create value are:

When comparing the profitability of firms in different industries,it is better to use profit margins on sales rather than profitability ratios based upon balance sheet items (such as return on equity or return on capital employed)?

The main difference between accounting measures of firm performance and stock-market measures of firm performance is:

Viewing strategy as a portfolio of options rather than a portfolio of investments,relies upon the rationale that:

To assess whether or not a firm is earning an adequate rate of profit,return on capital employed (ROCE)is a better indicator than return on sales because:

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

Basing management decisions on economic profit (e.g.Economic Value Added)rather than accounting profit is more important for companies with few fixed assets (such as software companies and consulting firms)than capital-intensive companies such as chemical companies and vehicle manufacturers.

The balanced scorecard is a useful tool for setting and monitoring performance targets for firms that pursue stakeholder goals;it is less useful for firms that seek to maximize profits over the long term.

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.

Which of the following activities by Starbucks Inc.is least likely to be an example of Michael Porter and Mark Kramer's "shared value creation":

In practice,pursuing stakeholder interests and pursuing shareholder interests are identical since in order to make profits a firm must satisfy all its stakeholders.

Firms are often constrained from pursing goals other than profit maximization by the pressure of competition and threat of acquisition.

Values and ethical principles can complement a firm's strategy through creating a sense of identity and supporting cohesion.

Economic profit is a better indicator of a firm's performance than accounting profit because economic profit takes account of the normal,expected return to capital.

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

"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.