Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

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:

Accepted Answer

A) The fact that in today's intensely competitive markets,firms must focus on profit maximization in order to survive 
B) The external pressures on firms that arise from (i)strong competition in product markets and (ii)the threat that firms that do not maximize profits will be acquired by firms that do 
C) The legal requirement on Boards of Directors to ensure that companies are operated in the interests of their shareholders 
D) Shareholder pressure on CEOs to maximize profits.

Question 5

The two processes through which firms create value are:

Accepted Answer

A) Restructuring existing businesses and creating new businesses through entrepreneurship 
B) Increases prices and reducing costs 
C) Production and commerce 
D) Production to create real value and marketing to create perceived value

Question 6

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)?

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) Accounting measures are less reliable because of firms' discretion over how they apply accounting conventions 
B) Stock market measures are less reliable because share prices are so volatile 
C) Accounting data offers a sound basis for forecasting future performance 
D) Accounting measures are backward looking;stock market measures are forward looking

Question 8

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

Accepted Answer

A) Uncertainty means that flexibility is valuable 
B) Committing to a long-term program of investment can be disastrous if circumstances change 
C) Most investment projects can be divided into a sequence of stages where,at any point of time,it is only necessary to decide the next stage 
D) All of the above

Question 9

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:

Accepted Answer

A) Sales are more variable than capital employed 
B) Return on sales vary between industries according to their capital intensity 
C) A firm's return on sales depends upon the choice between gross margin,operating margin,and net margin 
D) ROCE is based upon cash flow

Question 10

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

Accepted Answer

A) Shareholder value maximization is appropriate only for financial service companies 
B) Pursuing shareholder value inevitably leads to unethical behavior by senior managers 
C) Focusing on shareholder value does not necessarily encourage managers to concentrate on the actions and activities that create the profits that are the source of shareholder value 
D) Pursuing shareholder value is likely to be detrimental to employee morale and customer satisfaction

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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":

Accepted Answer

A) The 2015 "Race Together" initiative to combat racism and promote racial harmony 
B) The introduction in 2014 of college tuition benefits to employees 
C) Participating in the Coffee and Farm Equity program to benefit growers 
D) Setting targets for reducing energy utilization and increasing recycling.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

"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.

Accepted Answer

A) True 
 B)False

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.