Question 1

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?

Accepted Answer

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 2

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

Accepted Answer

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 3

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?

Accepted Answer

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

Question 4

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

Accepted Answer

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.

Question 5

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?

Accepted Answer

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 6

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

Accepted Answer

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 7

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?

Accepted Answer

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

Question 8

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?

Accepted Answer

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

Question 9

Kerry the Kangaroo Inc.specializes in producing and selling a stuffed kangaroo named Kerry.Although the stuffed kangaroo has sold well,the clothes that can be bought to dress the kangaroo have not sold as well as expected.As a result,Kerry the Kangaroo has warehouses full of hats,pants,sweaters,and shoes to dress Kerry.This firm used a _____ to determine how much of its capital is tied up in these accessory items.

Accepted Answer

A)  payables turnover 
B)  receivables turnover 
C)  fixed asset turnover 
D)  inventory turnover

Question 10

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

Accepted Answer

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 11

Jenny liked a pair of sapphire earrings and thought they would cost around $1,000.She was surprised to find that the price of the earrings was $1,500.However,she decided to buy the earrings anyway.This scenario describes

Accepted Answer

A)  consumer surplus. 
B)  producer surplus. 
C)  consumer profit. 
D)  producer profit.

Question 12

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.

Accepted Answer

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

Question 13

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

Accepted Answer

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

Question 14

Which of the following statements about competitive advantage is true?

Accepted Answer

A)  Competitive advantage is an absolute measure; it is not relative. 
B)  Competitive advantage is a one-dimensional concept. 
C)  Competitive advantage is permanent and not transitory; once gained by a firm it stays with the firm. 
D)  Competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value.

Question 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

In the freemium business model,the

Accepted Answer

A)  initial product is sold at a premium price and the complementary goods are given free. 
B)  users are free to pay for the services in advance or after using the services. 
C)  users are not charged for the basic features of a product or service, but the user must pay for premium advanced features or add-ons. 
D)  users pay for access to a product or service whether they use it during the payment term or not.

Question 18

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

Accepted Answer

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 19

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?

Accepted Answer

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

Question 20

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?

Accepted Answer

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

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