Deck 5: Competitive Advantage, Firm Performance, and Business Models

Question 1

Which of the following competitively important assets is typically excluded from a firm's balance sheet?

A) land and building
B) accounts payable
C) patents
D) customer experience

Answer 1

D
Explanation: Today, the most competitively important assets tend to be intangibles such as innovation, quality, and customer experience, which are not included in a firm's balance sheets. Intangibles that are not captured in accounting data have become much more important in firms' stock market valuations over the last few decades.

Question 2

_____ indicates how fast a firm is collecting the credit amount extended by a firm to its customers.

A) Payables turnover
B) Receivables turnover
C) Assets turnover
D) Inventory turnover

Answer 2

B
Explanation: Receivables turnover indicates how fast a firm is collecting the credit amount extended by the firm to its customers. Higher ratios of receivables turnover (Revenue/Accounts receivable) imply more efficient management in collecting accounts receivable and shorter durations of interest-free loans to customers (i.e., time until payments are due).

Question 3

The fixed asset turnover of a company is 8.3.What do you infer from this?

A) Every dollar spent on the company's fixed assets generates $8.30 of revenue.
B) 8.3% of the company's revenue is invested in fixed assets.
C) The return on fixed assets will break even in 8.3 years.
D) The cost of capital invested on fixed assets is 8.3% of the total profit.

Answer 3

A
Explanation: From the given data, it can be concluded that every dollar spent on the company's fixed assets generates $8.30 of revenue. Fixed asset turnover (Revenue/Fixed assets) measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).

Question 4

_____ are the legal owners of public companies.

A) Employees
B) Shareholders
C) Category captains
D) Creditors

Question 5

In 2014,Apple turned over its inventory more than 53 times.In stark contrast,Microsoft turned over its inventory only about 10 times during the year.Which of the following best explains this difference?

A) Apple had a more effective management of its global supply chain than Microsoft.
B) Microsoft had a stronger demand for its tablet computer than Apple did for its tablet computer.
C) Apple operated its own production facilities and therefore had lower production costs than Microsoft.
D) Microsoft had production facilities in countries with lower production costs than Apple.

Question 6

Apple Watch retailed for $349 in 2015,and the firm was predicted to sell millions of units.The firm's total cost in terms of materials and labor for the Apple Watch was no more than $84.Thus,Apple's profit for each watch sold is an estimated $265,with a profit margin of _____ percent.

A) 215
B) 265
C) 315
D) 365

Question 7

Which of the following ratios best expresses inventory turnover?

A) Inventory/Working capital
B) Annul profits/Inventory
C) Inventory/Per unit cost of production
D) Cost of goods sold/Inventory

Question 8

_____ most precisely measures how well a company leverages its fixed assets,particularly property,plant,and equipment (PPE).

A) Working capital turnover
B) Fixed asset turnover
C) Fixed assets to equity ratio
D) Capital leverage ratio

Question 9

The receivables turnover of VK Products Inc.is 13.6 and that of its competitor DL Goods Inc.is 6.0.What does this financial data primarily imply?

A) VK Products is less efficient than DL Goods in collecting accounts receivables.
B) DL Goods pays its creditors more quickly as compared to VK Products.
C) VK Products collects accounts receivables faster than AP Goods does.
D) DL Goods has a larger value gap as compared to VK Products.

Question 10

A high percentage of R&D/Revenue ratio indicates a(n)

A) strong focus on innovation to improve current products and services.
B) inefficiency in the management to focus on new products.
C) strong focus on marketing and sales to promote products and services.
D) negligent investment toward research and development.

Question 11

Which of the following best expresses fixed asset turnover?

A) Current assets/Fixed assets
B) Revenue/Fixed assets
C) Fixed assets/Total return to shareholders
D) Fixed assets/Current liabilities

Question 12

Which of the following statements is true of accounting data?

A) Accounting data focus mainly on intangible assets, rather than tangible assets.
B) Accounting data are historical data and thus backward-looking.
C) Accounting data do not have to be adjusted in any manner to compare companies with different capital structures.
D) Accounting data consider off-balance sheet items, such as pension obligations of a firm.

Question 13

_____ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors.

A) Payables turnover
B) Receivables turnover
C) Assets turnover
D) Inventory turnover

Question 14

_____ is best described as a measure of how effectively capital is being used by a firm to generate revenue.

A) Return on revenue
B) Risk capital
C) Working capital turnover
D) Revenue per employee

Question 15

The working capital of a small home-based business is $200,000.The revenues generated account to $600,000,and the profits incurred are $300,000.What would be the company's working capital turnover?

A) 3, that is, $600,000/$200,000
B) $300,000, that is, $600,000 - $300,000
C) 2, that is, $600,000/$300,000
D) $100,000, that is, $300,000 - $200,000

Question 16

The ratio Cost of goods sold/Revenue indicates how efficiently a company can

A) produce a good.
B) sell a good.
C) advertise a good.
D) design a good.

Question 17

_____ precisely indicates how much of a firm's sales is converted into profits.

A) Break-even price
B) Working capital turnover
C) Return on revenue
D) Inventory turnover

Question 18

The working capital turnover of Tesva Systems Corp.is 6.0.What does this financial data suggest?

A) For every $6.00 Tesva Systems puts to work, the company incurs a cost of $1.00.
B) For every $6.00 Tesva Systems puts to work, the company realizes sales of $1.00.
C) For every dollar Tesva Systems puts to work, the company realizes $6.00 in loss.
D) For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.

Question 19

In 2014,Apple had a return on revenue of 29.3 percent,and Microsoft had a return on revenue of 32 percent.Even so,Apple had a higher return on invested capital than Microsoft.Why did this happen?

A) Apple had a higher cost structure than Microsoft.
B) Apple was able to charge a much higher margin for its products and services than Microsoft.
C) Apple spent more on research and development and marketing and sales than Microsoft.
D) Apple had a much higher selling, general, and administrative expense that Microsoft.

Question 20

The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue,Research & Development expense/Revenue,and

A) Accounting profitability/Revenue.
B) Economic value created/Revenue.
C) Total return to shareholders/Revenue.
D) Selling, general, & administrative expense/Revenue.

Question 21

A firm incurs $100 to manufacture an office table.It fixes the market price of the table as $250,and discounts the price to $200.However,the maximum a person is willing to pay for it is $180.What is the amount of total perceived consumer benefits in this scenario?

A) $250
B) $200
C) $180
D) $100

Question 22

_____ denotes the dollar amount a consumer would attach to a good or service.

A) Utility
B) Value
C) Consumer surplus
D) Economic contribution

Question 23

The market capitalization of a public company is $5 billion.Each share of the company is traded at $200.What do you infer from this financial data?

A) The firm's number of outstanding shares is 25 million.
B) The firm pays an annual dividend of 10 percent.
C) The firm's total return to shareholder is $5 billion.
D) The firm's economic value created is $5 billion.

Question 24

_____ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it.

A) Economic value created
B) Break-even point
C) Consumer surplus
D) Cost of capital

Question 25

After trying on a dress,a consumer assesses it to be worth a maximum of $100 and is willing to pay that amount for the dress.However,the dress was priced at $80.What is the amount,$100,referred to as?

A) the producer surplus
B) the firm's cost (C) in manufacturing the dress
C) the consumer surplus
D) the value (V) the consumer attaches to the dress

Question 26

Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?

A) Market volatility makes it difficult to assess firm performance through these measures, particularly in the short-term.
B) These tools fail to indicate how the stock market views all available public information about a firm's expected future performance.
C) These tools measure competitive advantage in absolute terms rather than relative terms.
D) Only the book value of the share prices is taken into account when applying these measures, and not the market value.

Question 27

The value a consumer attaches to a product or service is captured in the

A) least price a consumer is willing to pay for it.
B) consumer's maximum willingness to pay for it.
C) expenses incurred by the firm in manufacturing it.
D) difference between the price charged for it and the cost to produce it.

Question 28

A watchmaking company has priced one of its wristwatches at $210.Most of its competitors sell similar watches at $180.Selling anything less than $150 would result in a loss for the company.However,the absolute maximum a customer is willing to pay for it is $170.In this scenario,what is the reservation price of the wristwatch?

A) $150
B) $180
C) $170
D) $210

Question 29

A firm incurs $400 to manufacture a television.In the market,customers are willing to pay a maximum of $600 for the television priced at $500.The difference of $200 ($600 minus $400)is the

A) consumer surplus.
B) total return to shareholders.
C) customer lifetime value.
D) economic value created.

Question 30

Return on risk capital primarily includes

A) stock price appreciation plus dividends received over a specific period.
B) consumer surplus plus firm profit.
C) account receivables plus account payables.
D) economic value created by a firm plus reservation price.

Question 31

A firm has 30 million shares outstanding,and each share is traded at $100.Also,each shareholder gets a dividend of $2,000 annually.In this case,the market capitalization is

A) 30,000 shares, that is, 30 million shares/$100.
B) $200,000, that is, $2,000 × $100.
C) $3 billion, that is, 30 million shares × $100.
D) 20:1, that is, $2,000/$100.

Question 32

The difference between the price charged for a product and the cost to manufacture it is referred to as the

A) consumer surplus.
B) break-even price.
C) producer surplus.
D) reservation price.

Question 33

From an investors' or shareholders' perspective,the measure of competitive advantage that matters most is the

A) return on risk capital.
B) economic value created.
C) consumer surplus.
D) inventory turnover.

Question 34

_____,which is the return on risk capital,includes stock price appreciation plus dividends received over a specific period.

A) Total return to shareholders
B) Earnings per share
C) Receivables turnover
D) Dividend yield

Question 35

Which of the following is an external performance metric?

A) return on revenue
B) fixed assets turnover
C) inventory turnover
D) total return to shareholders

Question 36

How does a firm capture its producer surplus for a good or service?

A) as cost per unit sold
B) as profit per unit sold
C) as earnings per share
D) as market price per share

Question 37

Which of the following is not true of risk capital?

A) From the shareholders' perspective, the measure of competitive advantage is primarily based on return on their risk capital.
B) Risk capital invested in a firm can be legally recovered if the firm goes bankrupt.
C) A person who provides capital to a firm gets equity shares in return.
D) Return on risk capital includes stock price appreciation plus dividends received over a specific period.

Question 38

Both Vibrant Phones Inc.and Oryxo Inc.incur a cost of $200 to manufacture a single unit of a cell phone.However,Vibrant Phones creates more economic value than Oryxo does.What does this imply?

A) Vibrant Phones and Oryxo have achieved a competitive parity.
B) Oryxo has a competitive advantage over Vibrant Phones.
C) Vibrant Phones sells its products at a better price than Oryxo.
D) Oryxo's offering has greater total perceived consumer benefits than Vibrant Phones's offering.

Question 39

Unlike the financial ratios based on accounting data,total return to shareholders is

A) backward-looking and historic in nature.
B) an external performance metric.
C) an absolute measure of competitive advantage.
D) unaffected by market volatility or macroeconomic factors.

Question 40

Which of the following expressions accurately describes market cap?

A) It is the product of the number of outstanding shares and the share price.
B) It is the difference between the book value and the market value of a firm's assets.
C) It is the ratio of a firm's equity finance and its debt finance.
D) It is the difference between a firm's account receivables and account payables.

Question 41

Which of the following is not an accurate expression of the economic value created per unit of a product sold?

A) the sum of consumer surplus and producer surplus
B) the difference between consumer's reservation price and firm's cost
C) the sum of consumer surplus and firm profit
D) the difference between the price charged and the firm's cost

Question 42

_____ are best described as the value of the best forgone alternative use of the resources employed.

A) Variable costs
B) Opportunity costs
C) Social costs
D) Switching costs

Question 43

Andrew invested $200,000 in the shares of a company.At the end of a year,he had earned $7,000 as dividends on his shares along with a $1,000 appreciation in the overall value of his shares.However,if Andrew had invested the same amount on an asset,like gold,the appreciation in its value would have earned him $10,000 at the end of the year.In this scenario,which of the following is Andrew's opportunity cost?

A) $7,000
B) $10,000
C) $2,000
D) $200,000

Question 44

Genevieve is a recent fashion graduate.She started her own apparel store with an investment of $300,000.In the first year she made a profit of $60,000.If she had taken up a job as a fashion editor for a magazine,she would have earned $50,000 as salary per year.Also,she could have invested her capital,$300,000,in treasury bonds and earned an interest of $12,000.Thus,the amount $62,000 ($50,000 + $12,000)would be Genevieve's

A) social cost.
B) break-even price.
C) reservation price.
D) opportunity cost.

Question 45

Nicki paid $900 for a camera that she thought was worth $1100 for all the features included in it.For the consumer electronics firm selling the camera,however,the cost of producing the camera was only $350.What is the consumer surplus in this scenario?

A) $900
B) $1,100
C) $550
D) $200

Question 46

When GD Inc.declared a dividend of $20,000,000,its market value increased from $8 billion to $8.5 billion.However,it lost a chance to reinvest $20,000,000 in the research and development of a new product which would have earned a profit of $200 million.Thus,this $200 million is referred to as GD Inc.'s

A) producer surplus.
B) consumer surplus.
C) opportunity cost.
D) social cost.

Question 47

By selling a laptop at $1,000 for which consumers are willing to pay up to $1,200,a consumer electronics firm makes a profit of $400 per unit.In this scenario,the amount $600,that is ($1200 - $1000)+ $400,is the

A) opportunity cost.
B) economic value created.
C) reservation price.
D) consumer surplus.

Question 48

Which of the following is an advantage of the balanced-scorecard?

A) It is a tool for both strategic formulation and strategic implementation.
B) It allows managers to translate a firm's vision into measureable operational goals.
C) The balanced-scorecard is independent of the skills of the managers responsible for its implementation.
D) Its implementation is a one-time effort and does not require continuous tracking of metrics or updating of strategic objectives.

Question 49

In order to achieve a competitive advantage,a firm should be able to

A) increase its payable turnover.
B) keep its producer surplus low.
C) increase the difference between the value created and the cost to produce it.
D) increase the difference between consumer surplus and its profits.

Question 50

Competitive advantage goes to the firm that achieves the

A) largest economic value created.
B) lowest producer surplus.
C) highest payable turnover.
D) highest Cost of goods sold/Revenue ratio.

Question 51

Economic value creation is best expressed as

A) producer surplus minus consumer surplus.
B) consumer surplus minus cost of production.
C) consumer surplus plus firm profit.
D) producer surplus plus firm profit.

Question 52

Which of the following statements is true of the balanced-scorecard?

A) It is a more or less a one-dimensional metric of measuring competitive advantages of a firm.
B) It is one of the traditional approaches of measuring firm performance.
C) Its primary focus is to base a firm's strategic goals entirely on external performance dimensions.
D) It attempts to provide a holistic perspective on firm performance.

Question 53

Osion Electronics Inc.incurs a cost of $350 to produce one unit of a cell phone.The company's management has priced the product at $600 in the market.Considering the technological advancement of the cell phone,customers perceive its value to be around $800.What is the economic value created in this scenario?

A) $350
B) $450
C) $800
D) $200

Question 54

The cost of capital to create a product is a fixed cost because it is

A) directly proportional to the output level.
B) uniform throughout all firms and industries.
C) not a part of the profit calculations.
D) unaffected by consumer demand.

Question 55

In an economic context,strategy for producers is primarily about

A) distributing the economic value created equally between consumers and themselves.
B) reducing the difference between consumer's willingness to pay for a product and the cost to produce it.
C) capturing the economic value created as much as possible.
D) lowering producer surplus and increasing consumer surplus.

Question 56

Which of the following is not an advantage of the balanced-scorecard approach to assess firm performance?

A) It allows managers to communicate and link the strategic vision to responsible parties within an organization.
B) It helps managers to implement feedback and organizational learning in order to modify and adapt strategic goals when indicated.
C) It provides a concise report that tracks chosen metrics and measures and compares them to target values.
D) It is a tool which can be effectively used by managers for both strategic implementation and strategic formulation.

Question 57

Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?

A) When the need for "hard numbers" arises, managers and analysts rely on economic value creation perspective to measure competitive advantage.
B) In economic value perspective, analysts not only consider historical costs, but also opportunity costs.
C) Arriving at the economic value created is easy because determining the value of a good in the eyes of consumers is a simple task.
D) It is the most efficient tool for assessing corporate-level competitive advantage of highly diversified companies with large product portfolios.

Question 58

Which of the following is not a limitation of the economic value creation framework?

A) The framework falls short when managers are called upon to operationalize competitive advantage.
B) The framework is not as effective as accounting profitability or shareholder value creation when the need for "hard numbers" arises.
C) The framework fails to provide the foundation that will help firms decide between cost-leadership or differentiation strategies.
D) The framework cannot be effectively applied for assessing corporate-level performance of diversified conglomerates.

Question 59

When using the balanced-scorecard approach to assess a firm's performance,which of the following is not a key question that managers need to answer?

A) How do customers view us?
B) How do we reduce the economic value created?
C) What core competencies do we need?
D) How do shareholders view us?

Question 60

Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?

A) the economic value creation model
B) the accounting profitability model
C) the shareholder value creation model
D) the balanced-scorecard model

Question 61

The tenet behind the triple-bottom-line is that

A) a firm should solely focus on increasing the economic value created to/for its customers.
B) a firm's primary objective should be increasing the total returns to its shareholders.
C) a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.
D) a firm's return on revenue can be broken down into three ratios: COGS/Revenue, R&D/Revenue, and SG&A/Revenue.

Question 62

Airbnb rents spaces that previously would have been unused to generate revenue,while also dramatically increasing the potential amount of accommodation space in the 191 countries.This business uses a _____ technique.

A) offshoring
B) crowdsourcing
C) peer-to-peer
D) binge watching

Question 63

Using the _____ approach,managers audit their company's fulfillment of its social and ecological obligations to stakeholders such as employees,customers,suppliers,and communities as conscientiously as they track its financial performance.

A) triple-bottom-line
B) economic value creation
C) accounting profitability
D) shareholder value creation

Question 64

In the _____ business model,the initial product is often sold at a loss or given away for free in order to drive demand for complementary goods.

A) subscription-based
B) razor-razor-blade
C) pay-as-you-go
D) direct sales

Question 65

Which of the following describes a peer-to-peer technique?

A) A company offers a cleaning service free of charge on a first-time trial basis.
B) A company offers a package of cleaning supplies at a discount.
C) A company matches an individual with a cleaning service.
D) A company places a low retail price on low-selling cleaning supplies.

Question 66

Which of the following scenarios best illustrates bundling?

A) Clean Brush Inc. sells its electric toothbrushes for a low cost, but charges a high price for replacement brushes.
B) Cumulus Media Inc. sells its cloud computing network by having customers pay for the service as they use it.
C) Sharp Cable Inc. sells its basic TV channels for free but charges high prices for any channels that customers add on later.
D) Fresh Seeds Inc. sells seed packages, in which a person can buy a package of three types of seeds at a discounted price compared to buying the seeds individually.

Question 67

True Vibgyor Inc.sells its e-book readers at the cost price of $15 each.However,the company makes its profits when users have to download or buy books online.Which of the following business models is True Vibgyor implementing?

A) subscription-based
B) razor-razor-blade
C) pay-as-you-go
D) direct sales

Question 68

Best Cut Inc.sells cutlery by having salespeople set up appointments with potential customers and give them a sales pitch for the product.When a salesperson sells cutlery,he or she gets a predetermined percentage commission.This type of business model is called

A) an agency.
B) bundling.
C) wholesale.
D) a freemium.

Question 69

Which of the following is the most accurate characterization of stakeholder theory?

A) an approach to understanding a firm as embedded in a network of internal and external constituencies that each make contributions and expect consideration in return
B) an approach to understanding a firm as being in a highly competitive industry, which requires the use of effective market capitalization to gain a competitive advantage
C) an approach to understanding a firm, which involves balancing tangible assets and intangible assets to achieve high accounting profitability
D) an approach to understanding a firm, which involves balancing multiple internal and external performance metrics in order to gain a competitive advantage

Question 70

Which of the following statements is true of the triple-bottom-line?

A) It is more or less a one-dimensional metric of measuring competitive advantage of a firm.
B) Its primary focus is to base a firm's strategic goals entirely on external performance dimensions.
C) According to this approach, achieving positive results in any one of the dimensions, economic, social, and ecological, can lead to a sustainable strategy.
D) Three dimensions, economic, social, and ecological, make up the triple-bottom-line.

Question 71

How does a sustainable strategy typically help a firm?

A) It helps the firm focus solely on its financial goals.
B) It reduces the need for corporate social responsibility within the firm.
C) It facilitates the firm in effectively isolating its external stakeholders.
D) It helps the firm achieve positive results along the social and ecological dimensions.

Question 72

Which of the following business models has been traditionally used by the magazine and newspaper industry?

A) subscription-based
B) razor-razor-blade
C) pay-as-you-go
D) freemium

Question 73

The top management at Parallela Pharma Inc.,through rigorous testing,ensures that the company develops and sells drugs that are free of harmful side effects.Also,the company ensures that the chemical waste generated in the manufacturing process is kept to a bare minimum and is disposed of according to the regulations of the Environmental Protection Agency.The management assesses its overall performance based on these dimensions.Thus,the managers at Parallela Pharma are applying the _____ approach to measure firm performance.

A) economic value creation
B) shareholder value creation
C) triple-bottom-line
D) accounting profitability

Question 74

Janet is the CEO of Far Sight Inc.,which uses a triple-bottom-line approach.As a result,Janet will tend to

A) view superior financial performance as the sole objective of her firm.
B) expect her company to be socially responsible.
C) use fossil fuels to run her company's production plants.
D) ignore the ecological dimension for her company.

Question 75

The translation of strategy into action primarily takes place in a firm's

A) mission statement.
B) executive summary.
C) business model.
D) code of conduct.

Question 76

Which of the following approaches to assess competitive advantage is based on the view that noneconomic factors can have a significant impact on a firm's financial performance?

A) the triple-bottom-line approach
B) the economic value creation framework
C) the accounting profitability approach
D) the balanced-scorecard

Question 77

_____ is a business model in which the manufacturer sets a fixed price on a product,but the retailer is to free set its own price.

A) Agency
B) Freemium
C) Bundling
D) Wholesale

Question 78

Manufacturers of electric fragrance diffusers sell the electric outer device at an extremely low price,sometimes even at a loss.However,they make their money on the product by charging a premium on the perfume refills that have to be replaced regularly.Which of the following business models does this best illustrate?

A) razor-razor-blade
B) subscription-based
C) freemium
D) pay-as-you-go

Question 79

During the process of formulating an effective business model,a firm's managers should first

A) transform their strategy of how to compete into a blueprint of actions and initiatives.
B) implement their strategy at corporate, strategic business unit, and functional levels.
C) implement their blueprint of actions and initiatives through structures, processes, culture, and procedures.
D) evaluate the firm's strategy already in effect and take corrective actions if necessary.

Question 80

Which of the following is an advantage of a triple-bottom-line approach?

A) The approach takes an integrative and holistic view in assessing a company's performance.
B) The approach does not rely on an external view of a firm to assess its performance.
C) The approach is more of a quantitative performance metric rather than a mere conceptual framework.
D) The framework can help managers assess a firm's competitive advantage without taking into account the firm's performance along noneconomic dimensions.