Deck 6: Flexibility and Real Options

Question 1

Strategic options exist when firms have the ________,but not the ________,to invest in a particular strategy.

A)ability; obligation
B)obligation; ability
C)money; people
D)people; money

Answer 1

A

Question 2

For a firm to have strategic flexibility,it must possess strategic options.

Answer 2

True

Question 3

A firm outsourcing distribution to a firm that distributes the products of many firms instead of outsourcing distribution to a firm that distributes only its production is an example of the option to ________.

A)defer
B)contract
C)grow
D)shut down and restart

Answer 3

D

Question 4

A firm building a plant with the ability to add capacity at low cost is an example of the option to ________.

A)defer
B)grow
C)contract
D)abandon

Question 5

Maintaining options that create strategic flexibility can be thought of as a third generic business level strategy.

Question 6

A ________ exists when a firm has the ability,but not the obligation,to invest in real assets of some type.

A)core competency
B)corporate option
C)real option
D)strategic intent

Question 7

Lisa Monroe's decision that called for Seymour Semiconductors to be able to choose from several strategic options instead of a fixed and planned course of action is called ________.

A)intended strategy
B)strategic flexibility
C)deliberate strategy
D)strategic intent

Question 8

An oil company leasing land for potential exploration instead of buying it is an example of the option to ________.

A)defer
B)grow
C)contract
D)expand

Question 9

Lisa Monroe's decision to lay off 1,000 of the company's employees and hire contract and temporary workers in their stead gives Seymour Semiconductors the option to ________.

A)defer
B)contract
C)grow
D)abandon

Question 10

Lisa Monroe's mandate that called for the company's future manufacturing plants to be built with the ability to add capacity at low cost gives Seymour Semiconductors the option to ________.

A)defer
B)abandon
C)grow
D)contract

Question 11

Strategic options exist when firms have the obligation but not the ability to invest in a particular strategy.

Question 12

Firms may not be able to create flexibility in their cost leadership strategy.

Question 13

Seymour Semiconductors has strategic options when it has the ________,but not the ________,to invest in a particular strategy.

A)responsibility; resources
B)resources; manpower
C)obligation; ability
D)ability; obligation

Question 14

A firm hiring contract and temporary employees instead of full-time employees is an example of the option to ________.

A)defer
B)contract
C)grow
D)abandon

Question 15

A real option exists when a firm has the ability,but not the obligation,to invest in real assets of some type.

Question 16

A firm investing to create one product because that investment could lead to the development of other products in the future is an example of the option to ________.

A)defer
B)grow
C)contract
D)expand

Question 17

Which of the following is NOT an example of a real asset?

A)land
B)brand name
C)building
D)raw material

Question 18

A firm building a manufacturing plant that employs only general-purpose machinery is an example of the option to ________.

A)defer
B)grow
C)abandon
D)contract

Question 19

Real assets are ________ resources that can have an impact on a firm's production.

A)intangible
B)ephemeral
C)transitory
D)tangible

Question 20

Strategic options are different from real options.

Question 21

The Black-Scholes model is used for valuing ________ options.

A)strategic
B)financial
C)corporate
D)business

Question 22

Real assets are tangible resources that can have an impact on a firm's production.

Question 23

What is strategic flexibility? Why is it thought of as a third generic business level strategy?

Question 24

The longer the time to ________,the greater is the value of a real option.

A)market
B)profitability
C)exercise
D)maturity

Question 25

How is the option to defer different from the option to contract?

Question 26

An example of the option to contract is to use contract and temporary employees instead of full-time employees.

Question 27

A decision-making setting is said to be ________ when the outcome of that decision is not known with certainty,but the possible outcomes associated with that decision,and their probability,are known before a decision is made.

A)risky
B)uncertain
C)typical
D)atypical

Question 28

What are strategic options?

Question 29

A decision making setting is said to be ________ when the outcomes of that decision are not known with certainty,and the possible outcomes associated with that decision,and their probability,are also not known before a decision is made.

A)risky
B)uncertain
C)strategic
D)typical

Question 30

The option to abandon is a type of flexibility.

Question 31

Under conditions of ________,the riskiness of the cash flows generated cannot be reliably anticipated.

A)constraint
B)certainty
C)uncertainty
D)competition

Question 32

In most countries,contract and temporary employees are much more expensive to lay off than full-time employees.

Question 33

The riskiest cash flows receive the ________ discount rates.

A)largest
B)smallest
C)standard
D)bank

Question 34

In reality,strategic choices are often made over time,in a ________ manner.

A)planned
B)staged
C)deliberate
D)flexible

Question 35

If the value of an option is $4.59,it means an investor should be willing to pay up to $4.59 for the ________,but not the ________ to buy the stock.

A)right; obligation
B)obligation; right
C)chance; right
D)obligation; opportunity

Question 36

The lower the ________ price,the greater is the value of a real option.

A)stock
B)operational
C)exercise
D)market

Question 37

What are real options?

Question 38

Under conditions of uncertainty,cash flow projections are ________.

A)simply unreliable
B)fairly certain
C)risk free
D)quite risky

Question 39

The ________ value of the cash flows generated by choosing and implementing a particular strategy is equal to the sum of those cash flows,discounted by how risky they are.

A)future
B)optional
C)present
D)strategic

Question 40

Gambling at a casino is a classic example of a(n)________ decision.

A)uncertain
B)deferred
C)managed
D)risky

Question 41

When technical uncertainty is low and market uncertainty is high,Rita McGrath and Ian MacMillan suggest a ________ option.

A)scouting
B)positioning
C)corporate
D)stepping-stone

Question 42

Amberger Products competes in consumer electronics where there is a high level of market and technological uncertainty.To address these challenges,Amberger Products does not commit itself to a particular product design or features early on; instead,it is geared to quickly and inexpensively assess if it has succeeded or failed with a design or feature,learn from its past,regroup and try again quickly.The option that Amberger Products uses is called a ________ option.

A)staged
B)positioning
C)stepping-stone
D)scouting

Question 43

Avoiding fixing on a particular design or set of features early,failing fast,failing cheap,learning fast,and trying again is what is meant by a ________ option.

A)financial
B)positioning
C)stepping-stone
D)scouting

Question 44

Real options are all about the flexibility afforded a firm under conditions of ________.

A)competition
B)risk
C)uncertainty
D)growth

Question 45

Under conditions of ________ market uncertainty and ________ technical uncertainty,investments in new products and services have limited real option value.

A)low; low
B)low; high
C)high; low
D)high; high

Question 46

The higher the ________ interest rate,the greater is the value of a real option.

A)risk-free
B)risk-adjusted
C)risk-linked
D)risk-mandated

Question 47

To see if valuing an investment as a real option creates any extra value for a firm,it is necessary to establish a ________.

A)timeline
B)benchmark
C)ceiling
D)floor

Question 48

The uncertainty that Seymour Semiconductors faces is with regard to ________.

A)the economy
B)the market
C)technology
D)both technology and market

Question 49

Per the Rita McGrath and Ian MacMillan typology,to combat the uncertainty that Seymour Semiconductors faces,the company should use ________ options.

A)stepping-stone
B)staged
C)positioning
D)scouting

Question 50

According to Rita McGrath and Ian MacMillan,there are ________ real options for a company to consider under technical and market uncertainty.

A)3
B)5
C)4
D)2

Question 51

When both technical and market uncertainty are high,Rita McGrath and Ian MacMillan suggest a ________ option.

A)scouting
B)positioning
C)corporate
D)stepping-stone

Question 52

Taking multiple small positions in alternative technologies and waiting until technological uncertainty is resolved to invest is what is meant by a ________ option.

A)financial
B)positioning
C)stepping-stone
D)scouting

Question 53

Putting several new offerings in consumers hand to gauge their reactions and investing once consumer preferences are clear is what is meant by a ________ option.

A)financial
B)positioning
C)stepping-stone
D)scouting

Question 54

According to Rita McGrath and Ian MacMillan,________ uncertainty refers to the extent to which managers understand how a new product or service will be received in the market.

A)technical
B)financial
C)functional
D)market

Question 55

Miranda Fashions competes in the fast-changing world of fickle teenage apparel tastes.To manage this uncertainty,Miranda Fashions typically puts out several new apparel offerings in small quantities to get customer reaction and once customer preferences are clear,it invests heavily to go all out.The option that Miranda Fashions uses is called a ________ option.

A)stepping-stone
B)scouting
C)staged
D)positioning

Question 56

When technical uncertainty is high and market uncertainty is low,Rita McGrath and Ian MacMillan suggest a ________ option.

A)scouting
B)positioning
C)corporate
D)stepping-stone

Question 57

The greater the uncertainty the uncertainty about future ________,the greater is the value of a real option.

A)interest rates
B)cash flows
C)profitability
D)economic cycles

Question 58

Which of the following is NOT a type of option to combat technological and market uncertainty according to Rita McGrath and Ian MacMillan?

A)staged
B)scouting
C)stepping-stone
D)positioning

Question 59

According to Rita McGrath and Ian MacMillan,________ uncertainty refers to the extent to which managers understand the process by which a new product or service will be developed before that process is undertaken.

A)technical
B)financial
C)functional
D)market

Question 60

Toryn,Inc.,a major player in semiconductors,makes small investments of 5-10 percent of a firm's equity in many emerging technology companies.Toryn buys the company outright once that company's technological uncertainty resolves.The option that Toryn,Inc.uses is called a ________ option.

A)positioning
B)scouting
C)strategic
D)stepping-stone

Question 61

Cash flow projections can be reliable under conditions of uncertainty.

Question 62

A decision making setting is said to be risky when the outcome of that decision is not known with certainty,and the possible outcomes associated with that decision,and their probability,are also not known before a decision is made.

Question 63

The greater the uncertainty,the more valuable a real option is.

Question 64

Strategic flexibility is most likely to be valuable under conditions of uncertainty.

Question 65

The Black-Scholes model is used in valuing financial options.

Question 66

A low exercise price suggests a higher probability of the option being exercised.

Question 67

In 2019,if Lisa Monroe decides that the market uncertainty for Seymour Semiconductors persists while the technological uncertainty has reduced considerably,she should move the company to using ________ options.

A)staged
B)positioning
C)stepping-stone
D)scouting

Question 68

The future value of the cash flows generated by choosing and implementing a particular strategy is equal to the sum of those cash flows,discounted by how risky they are.

Question 69

The effect of uncertainty on the value of a real option is extremely important.

Question 70

There is no distinction between the concepts of risk and uncertainty.

Question 71

Under conditions of uncertainty,the riskiness of the cash flows generated can be reliably anticipated.

Question 72

In 2019,if Lisa Monroe decides that the market uncertainty for Seymour Semiconductors has reduced considerably while the high technological uncertainty continues,she should move the company to using ________ options.

A)staged
B)positioning
C)stepping-stone
D)scouting

Question 73

While present value approaches do a wonderful job of incorporating risk into strategic decision making,they cannot be applied under conditions of uncertainty.

Question 74

To combat the uncertainty that Seymour Semiconductors faces,Lisa Monroe should direct the company to ________.

A)take small positions in alternative technologies and wait until technological uncertainty resolves,then invest
B)decide on a particular course of action,invest,and continue commitment
C)put several new offerings in buyers' hands to gauge their reactions,once their preferences are clear,invest
D)avoid fixing on a particular design or set of features early; fail fast,fail cheap; learn fast,and try again

Question 75

The lower the risk-free interest rate,the more valuable the option is.

Question 76

The lower the cost of exercising a real option,the lower is the value of that real option.

Question 77

Using present value analysis does not work under conditions of uncertainty.

Question 78

Strategic choices are often made over time,in a staged manner.

Question 79

Gambling at a casino is an example of a risky decision.

Question 80

The shorter the time to maturity,the more valuable a real option is.