CHAPTER
1 WHAT IS STRATEGY AND THE STRATEGIC
MANAGEMENT PROCESS
TRUE/FALSE QUESTIONS
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1.
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One of the central questions that all
strategic managers must address, regardless of the industry they work in, is
“What is our competition going to do next?”
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True
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False
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Answer: True
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Page: 4
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Difficulty: Easy
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Chapter
Objective: 1
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2.
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There is complete consensus among
strategic managers and academic researchers about what a "strategy"
is.
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True
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False
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Answer: False
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Page: 4
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Difficulty: Easy
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Chapter
Objective: 1
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3.
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For the purposes of this book, a firm's
strategy is defined as its theory about how to gain competitive advantages.
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True
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False
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Answer: True
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Page: 5
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Difficulty: Easy
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Chapter
Objective: 1
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4.
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A "good strategy" does not
necessarily have to create a competitive advantage.
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True
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False
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Answer: False
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Page: 5
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Difficulty: Moderate
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Chapter
Objective: 1
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5.
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The greater the extent to which a firm's
assumptions and hypotheses accurately describe how the competition in the
industry is likely to evolve, and how that evolution can be exploited to earn
a profit, the more likely it is that a firm will gain a competitive advantage
from implementing its strategies.
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True
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False
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Answer: True
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Page: 5
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Difficulty: Easy
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Chapter
Objective: 1
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6.
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It is usually possible to know for sure
that a firm is choosing the right strategy.
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True
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False
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Answer: False
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Page: 5
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Difficulty: Moderate
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Chapter
Objective: 1
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7.
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The strategic management process is a
sequential set of analyses and choices that can increase the likelihood that
a firm will choose a good strategy that generates competitive
advantages.
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True
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False
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Answer: True
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Page: 5
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Difficulty: Easy
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Chapter
Objective: 2
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8.
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The second step in the strategic
management process is the definition of a firm’s mission.
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True
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False
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Answer: False
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Page: 6
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Difficulty: Easy
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Chapter
Objective: 2
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9.
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A firm's mission defines both what it
wants to be in the long run and what it wants to avoid in the meantime.
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True
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False
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Answer: True
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Page: 6
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Difficulty: Easy
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Chapter
Objective: 2
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10.
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True
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False
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Answer: False
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Page: 6
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Difficulty: Moderate
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Chapter
Objective: 2
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11.
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Firms whose mission statement is central
to all they do are known as missionary firms.
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True
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False
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Answer: False
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Page: 6
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Difficulty: Easy
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Chapter
Objective: 2
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12.
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Visionary firms earn substantially higher
returns than average firms because they acknowledge that profit maximizing is
their primary reason for existence.
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True
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False
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Answer: False
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Page: 6
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Difficulty: Hard
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Chapter
Objective: 2
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13.
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True
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False
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Answer: True
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Page: 8
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Difficulty: Moderate
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Chapter
Objective: 2
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14.
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Objectives are the specific measurable
targets a firm can use to evaluate the extent to which it is realizing its
mission.
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True
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False
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Answer: True
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Page: 9
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Difficulty: Easy
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Chapter
Objective: 2
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15.
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High quality objectives are tightly
connected to the elements of a firm's mission but tend to be relatively
difficulty to measure and track over time.
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True
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False
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Answer: False
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Page: 9
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Difficulty: Hard
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Chapter
Objective: 2
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16.
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By conducting an external analysis, a
firm identifies the critical threats and opportunities in the industry's
competitive environment.
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True
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False
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Answer: True
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Page: 9
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Difficulty: Moderate
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Chapter
Objective: 2
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17.
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Corporate level strategies are actions
firms take to gain competitive advantages in a single market or industry.
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True
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False
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Answer: False
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Page: 11
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Difficulty: Easy
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Chapter
Objective: 2
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18.
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Business level strategies are actions
firms take to gain competitive advantages by operating in multiple markets or
industries simultaneously.
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True
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False
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Answer: False
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Page: 11
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Difficulty: Easy
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Chapter
Objective: 2
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19.
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Strategy implementation occurs when a
firm adopts organizational policies and practices that are consistent with
its strategy.
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True
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False
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Answer: True
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Page: 11
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Difficulty: Easy
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Chapter
Objective: 2
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20.
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In general, a firm has a competitive
advantage when it is able to create more economic value than rival firms.
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True
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False
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Answer: True
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Page: 12
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Difficulty: Easy
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Chapter
Objective: 3
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21.
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The size of a firm's competitive
advantage is the sum of the economic value a firm is able to create and the
economic value rivals are able to create.
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True
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False
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Answer: False
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Page: 12
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Difficulty: Moderate
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Chapter
Objective: 3
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22.
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A sustained competitive advantage is
virtually permanent.
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True
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False
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Answer: False
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Page: 14
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Difficulty: Moderate
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Chapter
Objective: 3
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23.
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Firms that create the same economic value
as their rivals experience competitive parity.
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True
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False
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Answer: True
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Page: 13
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Difficulty: Easy
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Chapter
Objective: 3
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24.
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A firm's accounting performance is a
measure of its competitive advantage calculated using information from a
firm's published profit and loss and balance sheet statements.
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True
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False
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Answer: True
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Page: 15
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Difficulty: Easy
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Chapter
Objective: 4
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25.
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Applying accounting measures of
competitive advantage for firms that are headquartered in different countries
is not complicated by issues such as differences in accounting practices and
exchange rates.
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True
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False
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Answer: False
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Page: 17
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Difficulty: Moderate
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Chapter
Objective: 4
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26.
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Activity ratios are ratios with some
measure of profit in the numerator and some measure of firm size or assets in
the denominator.
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True
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False
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Answer: False
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Page: 18
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Difficulty: Easy
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Chapter
Objective: 4
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27.
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Liquidity ratios are ratios that focus on
the firm's ability to meet its short-term financial obligations.
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|||
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True
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False
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Answer: True
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Page: 16
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Difficulty: Easy
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Chapter
Objective: 4
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28.
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When a firm earns above average
accounting performance, it is said to enjoy competitive parity.
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|||
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True
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|||
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False
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|||
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Answer: False
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Page: 17
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Difficulty: Moderate
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Chapter
Objective: 4
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29.
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A firm that earns below average
accounting performance, performance that is less than the industry average,
generally experiences a competitive disadvantage.
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|||
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True
|
|||
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False
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|||
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Answer: True
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Page: 17
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Difficulty: Moderate
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Chapter
Objective: 4
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30.
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The greatest disadvantage of accounting
measures of competitive performance is that they are relatively difficult to
compute.
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|||
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True
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|||
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False
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Answer: False
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Page: 19
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Difficulty: Easy
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Chapter
Objective: 4
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31.
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Economic measures of competitive
advantage compare a firm's level of return to its costs of capital instead of
to the average level of return to the industry.
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|||
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True
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False
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Answer: True
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Page: 20
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Difficulty: Easy
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Chapter
Objective: 4
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32.
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The cost of equity is equal to the
interest a firm must pay its debt holders in order to induce those debt
holders to lend money to the firm.
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|||
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True
|
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False
|
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Answer: False
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Page: 20
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Difficulty: Easy
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Chapter
Objective: 4
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33.
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The residual claimants' view of equity
holders argues that the interests of equity holders and a firm's other
stakeholders often collide.
|
|||
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True
|
|||
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False
|
|||
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Answer: False
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Page: 23
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Difficulty: Hard
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Chapter
Objective: 4
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34.
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The correlation between economic and
accounting measures of competitive advantage is generally low.
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|||
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True
|
|||
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False
|
|||
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Answer: False
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Page:22
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Difficulty: Moderate
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Chapter
Objective: 4
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35.
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Emergent strategies are theories of how
to gain competitive advantage in an industry that emerge over time or that
have been radically reshaped once they are initially implemented.
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|||
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True
|
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False
|
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Answer: True
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Page: 23
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Difficulty: Moderate
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Chapter
Objective: 5
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36.
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Johnson & Johnson's introduction of
"Johnson's Toilet and Baby Powder" as a result of customers' asking
to purchase the talcum powder is an example of a planned strategy.
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|||
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True
|
|||
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False
|
|||
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Answer: False
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Page:24
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Difficulty: Moderate
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Chapter
Objective: 5
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37.
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Emergent strategies are only important
when a firm fails to implement the strategic management process effectively.
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|||
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True
|
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False
|
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Answer: False
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Page: 25
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Difficulty: Moderate
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Chapter
Objective: 5
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38.
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Firms with strategies that are unlikely
to be a source of competitive advantage will rarely provide the same career
opportunities as firms with strategies that do generate such advantages.
|
|||
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True
|
|||
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False
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Answer: True
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Page: 25
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Difficulty: Easy
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Chapter
Objective: 6
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39.
|
Strategic choices are generally limited
to very experienced senior managers in large corporations; in smaller and
entrepreneurial firms, many employees end up being involved in the strategic
management process.
|
|||
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True
|
|||
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False
|
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Answer: True
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Page: 25
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Difficulty: Easy
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Chapter
Objective: 6
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40.
|
Global strategies are best, and almost
exclusively, viewed as a unique category of strategy, separate from other
business and corporate strategies.
|
|||
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True
|
|||
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False
|
|||
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Answer: False
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Page: 27
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Difficulty: Moderate
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Chapter
Objective: 7
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MULTIPLE
CHOICE QUESTIONS
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41.
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A firm's _________ is defined as its
theory about how to gain competitive advantages.
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A.
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objectives
|
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B.
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mission
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C.
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vision
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D.
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strategy
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Answer: D
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Page: 5
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Difficulty: Easy
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Chapter
Objective: 1
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42.
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The sequential set of analyses and
choices that can increase the likelihood that a firm will choose a strategy
that generates competitive advantages is the
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|||
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A.
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organizational change process.
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B.
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strategic management process.
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C.
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mission statement process.
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D.
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goal setting process.
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Answer: B
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Page: 5
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Difficulty: Moderate
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Chapter
Objective: 2
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43.
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A firm's ________ is its long-term
purpose that defines both what a firm aspires to be in the long run and what
it wants to avoid in the meantime.
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|||
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A.
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mission
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B.
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vision
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|||
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C.
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objective
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D.
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goal
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Answer: A
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Page: 6
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Difficulty: Easy
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Chapter
Objective: 2
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44.
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Missions are often written down in the
form of
|
|||
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A.
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vision statements.
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B.
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mission statements.
|
|||
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C.
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corporate objectives.
|
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D.
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organizational goals.
|
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Answer: B
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Page: 6
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Difficulty: Easy
|
Chapter
Objective: 2
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45.
|
Firms whose mission is central to all
they do are known as ______ firms.
|
|||
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A.
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missionary
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B.
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legendary
|
|||
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C.
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parity
|
|||
|
D.
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visionary
|
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Answer: D
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Page: 6
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Difficulty: Moderate
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Chapter
Objective: 2
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46.
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From 1926 to 1995, visionary firms earned
______________ returns compared to firms that were not visionary firms.
|
|||
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A.
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substantially lower
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B.
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substantially higher
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C.
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marginally lower
|
|||
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D.
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substantially equivalent
|
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Answer: B
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Page: 6
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Difficulty: Moderate
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Chapter
Objective: 2
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47.
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The mission statements of visionary firms
|
|||
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A.
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suggest that profit maximizing, while an
important corporate objective, is not their primary reason for existence.
|
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B.
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suggest that profit maximizing is neither
an important corporate objective nor their primary reason for existence.
|
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C.
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suggest that profit maximizing is their
primary reason for existence.
|
|||
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D.
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suggest that profit maximizing is an
important corporate objective and is their primary reason of existence.
|
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Answer: A
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Page: 8
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Difficulty: Moderate
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Chapter
Objective: 2
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48.
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Which of the following statements
regarding firm mission is accurate?
|
|||
|
A.
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While some firms have used their missions
to develop strategies that create significant competitive advantages, firm
missions can hurt a firm's performance as well.
|
|||
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B.
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Virtually all firms have used missions to
develop strategies that create significant competitive advantages, while very
few firms have used missions that can hurt their performance.
|
|||
|
C.
|
It is very rare for firms to be able to
use their missions to develop strategies that create significant competitive
advantages, and most firm missions actually hurt their performance.
|
|||
|
D.
|
Missions tend to have very little impact
on a firm's ability to create significant competitive advantages.
|
|||
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Answer: A
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Page: 8
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Difficulty: Moderate
|
Chapter
Objective: 2
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|
|
49.
|
________ are specific measurable targets
a firm can use to evaluate the extent to which it is realizing its
mission.
|
|||
|
A.
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Visions
|
|||
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B.
|
Missions
|
|||
|
C.
|
Competitive Advantages
|
|||
|
D.
|
Objectives
|
|||
|
Answer: D
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Page: 9
|
Difficulty: Easy
|
Chapter
Objective: 2
|
|
|
50.
|
High quality objectives are those that
are
|
|||
|
A.
|
tightly connected to elements of a firm's
mission.
|
|||
|
B.
|
difficult to measure.
|
|||
|
C.
|
difficult to track over time.
|
|||
|
D.
|
not quantitative.
|
|||
|
Answer: A
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Page: 9
|
Difficulty: Moderate
|
Chapter
Objective: 2
|
|
|
51.
|
By conducting a(n) ________________, a
firm identifies the critical threats and opportunities in its competitive
environment.
|
|||
|
A.
|
internal analysis
|
|||
|
B.
|
competitive analysis
|
|||
|
C.
|
external analysis
|
|||
|
D.
|
economic analysis
|
|||
|
Answer: C
|
Page: 9
|
Difficulty: Easy
|
Chapter
Objective: 2
|
|
|
52.
|
_______________ helps a firm understand
which of its resources and capabilities are likely to be sources of
competitive advantage.
|
|||
|
A.
|
Competitive analysis
|
|||
|
B.
|
Internal analysis
|
|||
|
C.
|
Comparative analysis
|
|||
|
D.
|
External analysis
|
|||
|
Answer: B
|
Page: 10
|
Difficulty: Moderate
|
Chapter
Objective: 2
|
|
|
53.
|
Actions firms take to gain competitive
advantages in a single market or industry are known as
|
|||
|
A.
|
business level strategies.
|
|||
|
B.
|
corporate level strategies.
|
|||
|
C.
|
functional level strategies.
|
|||
|
D.
|
sustainable strategies.
|
|||
|
Answer: A
|
Page: 11
|
Difficulty: Moderate
|
Chapter
Objective: 2
|
|
|
54.
|
Actions firms take to gain competitive
advantages by operating in multiple markets or industries simultaneously are
known as
|
|||
|
A.
|
corporate level strategies.
|
|||
|
B.
|
functional strategies.
|
|||
|
C.
|
business level strategies.
|
|||
|
D.
|
macro level strategies.
|
|||
|
Answer: A
|
Page: 11
|
Difficulty: Moderate
|
Chapter
Objective: 2
|
|
|
55.
|
_____________ occurs when a firm adopts
organizational policies and practices that are consistent with its
strategy.
|
|||
|
A.
|
Strategy formulation
|
|||
|
B.
|
Organizational change
|
|||
|
C.
|
Strategy implementation
|
|||
|
D.
|
Strategic control
|
|||
|
Answer: C
|
Page: 11
|
Difficulty: Easy
|
Chapter
Objective: 2
|
|
|
56.
|
When a firm is able to create more
economic value than rival firms it is said to have a(n)
|
|||
|
A.
|
comparative advantage.
|
|||
|
B.
|
competitive advantage.
|
|||
|
C.
|
strategic choice.
|
|||
|
D.
|
economic advantage.
|
|||
|
Answer: B
|
Page: 12
|
Difficulty: Moderate
|
Chapter
Objective: 3
|
|
|
57.
|
The difference between the perceived
benefits gained by a customer that purchases a firm's products or services
and the full economic costs of these products or services is known as
|
|||
|
A.
|
accounting value.
|
|||
|
B.
|
comparative value.
|
|||
|
C.
|
economic value.
|
|||
|
D.
|
sustainable value.
|
|||
|
Answer: C
|
Page: 12
|
Difficulty: Easy
|
Chapter
Objective: 3
|
|
|
58.
|
If TechnoGeek and VarsityBlue compete in
the same market for the same customer and TechnoGeek generates $900 of
economic value each time it sells a product or service while VarsityBlue
generates $400 of economic value each time it sells a product or service,
TechnoGeek has a competitive advantage of
|
|||
|
A.
|
$1,300.
|
|||
|
B.
|
$3,600.
|
|||
|
C.
|
$360,000.
|
|||
|
D.
|
$500.
|
|||
|
Answer: D
|
Page: 12
|
Difficulty: Hard
|
Chapter
Objective: 3
|
|
|
59.
|
A competitive advantage that lasts a very
short period of time is known as a _______ competitive advantage.
|
|||
|
A.
|
temporary
|
|||
|
B.
|
sustained
|
|||
|
C.
|
transient
|
|||
|
D.
|
perpetual
|
|||
|
Answer: A
|
Page: 13
|
Difficulty: Moderate
|
Chapter
Objective: 3
|
|
|
60.
|
Firms that create the same economic value
as their rivals experience competitive
|
|||
|
A.
|
disadvantage.
|
|||
|
B.
|
parity.
|
|||
|
C.
|
superiority.
|
|||
|
D.
|
advantage.
|
|||
|
Answer: B
|
Page: 13
|
Difficulty: Easy
|
Chapter
Objective: 3
|
|
|
61.
|
Firms that generate less economic value
than their rivals experience a competitive
|
|||
|
A.
|
advantage.
|
|||
|
B.
|
parity.
|
|||
|
C.
|
disadvantage.
|
|||
|
D.
|
preference.
|
|||
|
Answer: C
|
Page: 13
|
Difficulty: Moderate
|
Chapter
Objective: 3
|
|
|
62.
|
In many ways, the difference between
traditional economics research and strategic management research is that the
former attempts to explain why _________, while the latter attempts to
explain ______________
|
|||
|
A.
|
competitive advantages should not
persist; when they can.
|
|||
|
B.
|
competitive advantages should persist;
when they can.
|
|||
|
C.
|
competitive advantages should persist;
why they should not.
|
|||
|
D.
|
competitive parity should not persist;
why they should.
|
|||
|
Answer: A
|
Page: 14
|
Difficulty: Hard
|
Chapter
Objective: 3
|
|
|
63.
|
The two types of measures of competitive
advantage include
|
|||
|
A.
|
accounting measures and strategic
measures.
|
|||
|
B.
|
strategic measures and economic measures.
|
|||
|
C.
|
accounting measures and economic
measures.
|
|||
|
D.
|
qualitative measures and quantitative
measures.
|
|||
|
Answer: C
|
Page: 15
|
Difficulty: Moderate
|
Chapter
Objective: 4
|
|
|
64.
|
A firm's _____________ is a measure of
its competitive advantage calculated using information from a firm's
published profit and loss and balance sheet statements.
|
|||
|
A.
|
economic performance
|
|||
|
B.
|
accounting performance
|
|||
|
C.
|
strategic performance
|
|||
|
D.
|
sustainable performance
|
|||
|
Answer: B
|
Page: 15
|
Difficulty: Moderate
|
Chapter
Objective: 4
|
|
|
65.
|
____________ are ratios with some measure
of profit in the numerator and some measure of firms' size or assets in the
denominator.
|
|||
|
A.
|
Liquidity ratios
|
|||
|
B.
|
Leverage ratios
|
|||
|
C.
|
Activity ratios
|
|||
|
D.
|
Profitability ratios
|
|||
|
Answer: D
|
Page: 16
|
Difficulty: Easy
|
Chapter
Objective: 4
|
|
|
66.
|
Ratios that focus on the level of a
firm's financial flexibility, including its ability to obtain more debt, are
known as
|
|||
|
A.
|
leverage ratios.
|
|||
|
B.
|
liquidity ratios.
|
|||
|
C.
|
activity ratios.
|
|||
|
D.
|
profitability ratios.
|
|||
|
Answer: A
|
Page: 16
|
Difficulty: Easy
|
Chapter
Objective: 4
|
|
|
67.
|
Using ratio analysis, a firm earns
_________________ when its performance is greater than the industry average.
|
|||
|
A.
|
above average economic performance
|
|||
|
B.
|
below average accounting performance
|
|||
|
C.
|
above average accounting performance
|
|||
|
D.
|
below average economic performance
|
|||
|
Answer: C
|
Page: 16
|
Difficulty: Hard
|
Chapter
Objective: 4
|
|
|
68.
|
The ______________ is the rate of return
that a firm promises to pay its suppliers of capital to induce them to invest
in the firm.
|
|||
|
A.
|
cost of debt
|
|||
|
B.
|
cost of advantage
|
|||
|
C.
|
cost of parity
|
|||
|
D.
|
cost of capital
|
|||
|
Answer: D
|
Page: 19
|
Difficulty: Moderate
|
Chapter
Objective: 4
|
|
|
69.
|
____________ measures of competitive
advantage compare a firm's level of return to its cost of capital instead of
to the average level of return in the industry.
|
|||
|
A.
|
Economic
|
|||
|
B.
|
Accounting
|
|||
|
C.
|
Strategic
|
|||
|
D.
|
Sustainable
|
|||
|
Answer: A
|
Page: 20
|
Difficulty: Moderate
|
Chapter
Objective: 4
|
|
|
70.
|
The percentage of a firm's total capital
that is debt times the cost of debt plus the percentage of a firm's total
capital that is equity times the cost of equity is the
|
|||
|
A.
|
weighted cost of capital.
|
|||
|
B.
|
weighted average cost of capital.
|
|||
|
C.
|
unweighted average cost of capital.
|
|||
|
D.
|
average cost of capital.
|
|||
|
Answer: B
|
Page: 21
|
Difficulty: Hard
|
Chapter
Objective: 4
|
|
|
71.
|
If the risk free rate of return is 4%,
the market rate of return is 9%, and a firm’s beta is 2.0, what is the firm’s
cost of equity?
|
|||
|
A.
|
30
|
|||
|
B.
|
6
|
|||
|
C.
|
18
|
|||
|
D.
|
14
|
|||
|
Answer: D
|
Page: 21
|
Difficulty: Hard
|
Chapter
Objective: 4
|
|
|
72.
|
If a firm has total assets of $10
million, stockholder’s equity of $6 million, a cost of equity of 10, and an
after tax cost of debt of 5%, what is the firm’s Weighted Average Cost of
Capital?
|
|||
|
A.
|
8
|
|||
|
B.
|
18
|
|||
|
C.
|
7
|
|||
|
D.
|
1
|
|||
|
Answer: A
|
Page: 21
|
Difficulty: Hard
|
Chapter
Objective: 4
|
|
|
73.
|
A firm that earns its cost of capital is
said to be earning
|
|||
|
A.
|
above normal economic performance.
|
|||
|
B.
|
normal economic performance.
|
|||
|
C.
|
below normal economic performance.
|
|||
|
D.
|
normal accounting performance.
|
|||
|
Answer: B
|
Page: 22
|
Difficulty: Easy
|
Chapter
Objective: 4
|
|
|
74.
|
The view that equity holders only receive
payment on their investment in a firm after all legitimate claims by a firm’s
other stakeholders are satisfied is known as the __________ view of equity
holders.
|
|||
|
A.
|
stakeholder
|
|||
|
B.
|
residual claimants
|
|||
|
C.
|
legitimate claimants
|
|||
|
D.
|
extraordinary claims
|
|||
|
Answer: B
|
Page: 23
|
Difficulty: Medium
|
Chapter
Objective: 4
|
|
|
75.
|
Theories of how to gain competitive
advantage in an industry that emerge over time or that have been radically
reshaped once they are initially implemented are known as
|
|||
|
A.
|
emergent strategies.
|
|||
|
B.
|
objective strategies.
|
|||
|
C.
|
planned strategies.
|
|||
|
D.
|
ad hoc strategies.
|
|||
|
Answer: A
|
Page: 23
|
Difficulty: Easy
|
Chapter
Objective: 5
|
|
|
76.
|
The realized strategy of most firms tends
to be
|
|||
|
A.
|
almost exclusively a reflection of their
intended strategy.
|
|||
|
B.
|
almost exclusively a reflection of their
emergent strategy.
|
|||
|
C.
|
a combination of both intended and
emergent strategies.
|
|||
|
D.
|
reflective of neither the firms intended
nor emergent strategy.
|
|||
|
Answer: C
|
Page: 24
|
Difficulty: Moderate
|
Chapter
Objective: 5
|
|
|
77.
|
Which of the following is a reason why it
is important for students to study strategy and the strategic management
process?
|
|||
|
A.
|
Studying strategy and the strategic
management process can give students tools to evaluate the strategies of
firms that may employ them.
|
|||
|
B.
|
It can be very important to a new hire's career
success to understand the strategies of the firm that hired them and their
place in implementing these strategies.
|
|||
|
C.
|
While strategic choices are generally
limited to very experienced senior managers in large organizations, in
smaller and entrepreneurial firms many employees end up being involved in the
strategic management process.
|
|||
|
D.
|
All of the above.
|
|||
|
Answer: D
|
Page: 25
|
Difficulty: Moderate
|
Chapter
Objective: 6
|
|
|
78.
|
Managers who believe that conceiving of
and implementing international strategies require a set of skills that are
qualitatively different from the skills required to conceive of and implement
either corporate and business strategies are likely to view global strategies
|
|||
|
A.
|
as a unique category strategy, but not
significantly different from other business and corporate strategies.
|
|||
|
B.
|
as just one way that firms can pursue
their business or corporate strategies.
|
|||
|
C.
|
as a unique category strategy, separate
from other business and corporate strategies.
|
|||
|
D.
|
as completely unrelated to a firm's
business and corporate strategies.
|
|||
|
Answer: C
|
Page: 27
|
Difficulty: Moderate
|
Chapter
Objective: 7
|
|
|
79.
|
Which type of ratios focus on the ability
of a firm to meet its short-term financial obligations?
|
|||
|
A.
|
activity ratios
|
|||
|
B.
|
liquidity ratios
|
|||
|
C.
|
leverage ratios
|
|||
|
D.
|
profitability ratios
|
|||
|
Answer: B
|
Page: 16
|
Difficulty: Easy
|
Chapter
Objective: 4
|
|
|
80.
|
One of the first scholars to examine the
longevity of competitive advantage was
|
|||
|
A.
|
Dennis Mueller.
|
|||
|
B.
|
Geoffrey Waring.
|
|||
|
C.
|
Peter Roberts.
|
|||
|
D.
|
Rich Houston.
|
|||
|
Answer: A
|
Page: 14
|
Difficulty: Hard
|
Chapter
Objective: 3
|
|
|
81.
|
Thermacorp is in the heating and cooling
industry and has total assets of $20 million, with stockholders'
equity of $15 million, an ROE of 17.3%, and a firm
Beta of 1.6. If the risk free rate of
return is 4 and the market rate of return is 10, what is the cost of equity?
|
|||
|
A.
|
19.6
|
|||
|
B.
|
7.75
|
|||
|
C.
|
13.6
|
|||
|
D.
|
25.28
|
|||
|
Answer: C
|
Page: 21
|
Difficulty: Moderate
|
Chapter
Objective: 4
|
|
|
82.
|
Thermacorp's cost of equity is 13.6. If
the after tax cost of debt is 4.6, what is the weighted average cost of
capital?
|
|||
|
A.
|
15.85
|
|||
|
B.
|
11.35
|
|||
|
C.
|
11.2
|
|||
|
D.
|
13.2
|
|||
|
Answer: B
|
Page: 21
|
Difficulty: Hard
|
Chapter
Objective: 4
|
|
|
83.
|
Thermacorp's weighted average cost of
capital is 11.35. If the average WACC in the heating and cooling industry is
19, Thermacorp can be said to be earning
|
|||
|
A.
|
above normal economic performance.
|
|||
|
B.
|
above normal accounting performance.
|
|||
|
C.
|
below normal economic performance.
|
|||
|
D.
|
below normal accounting performance.
|
|||
|
Answer: C
|
Page: 20
|
Difficulty: Moderate
|
Chapter
Objective: 4
|
|
|
84.
|
Thermacorp's 17.3% ROE is an example of
a(n) __________ ratio.
|
|||
|
A.
|
liquidity
|
|||
|
B.
|
profitability
|
|||
|
C.
|
activity
|
|||
|
D.
|
leverage
|
|||
|
Answer: B
|
Page: 26
|
Difficulty: Easy
|
Chapter
Objective: 4
|
|
|
85.
|
If the average ROE in the heating and
cooling industry is 10.1%, and Thermacorp’s ROE is 17.3%, Thermacorp is said
to have
|
|||
|
A.
|
below average accounting performance.
|
|||
|
B.
|
above average economic performance.
|
|||
|
C.
|
above average accounting performance.
|
|||
|
D.
|
below average economic performance.
|
|||
|
Answer: C
|
Page: 20
|
Difficulty: Moderate
|
Chapter
Objective: 4
|
|
|
86.
|
Green Frog is an environmentally friendly
firm in the cosmetics industry that has decided to undertake a strategic
planning project. They want to
ensure that they perform the process correctly and so intend to start the
process with the first step of the strategic planning process which is
|
|||
|
A.
|
crafting a mission statement.
|
|||
|
B.
|
setting objectives.
|
|||
|
C.
|
measuring performance.
|
|||
|
D.
|
defining their business level strategy.
|
|||
|
Answer: A
|
Page: 6
|
Difficulty: Easy
|
Chapter
Objective: 2
|
|
|
87.
|
Even though Green Frog is environmentally
friendly, the strategic planning team had decided that financial performance
is one of the company’s top priorities.
Which of the following is the best example of an objective the company
might use to help them achieve their goal of superior financial performance?
|
|||
|
A.
|
Increasing profitability.
|
|||
|
B.
|
Growing market share annually.
|
|||
|
C.
|
Improving product quality every quarter.
|
|||
|
D.
|
Growth in earnings per share averaging
15% or better annually for the next five years.
|
|||
|
Answer: D
|
Page: 9
|
Difficulty: Moderate
|
Chapter
Objective: 2
|
|
|
88.
|
If during the strategic planning process
Green Frog tried to determine the critical threats and opportunities in its
competitive environment, it would be performing a(n)
|
|||
|
A.
|
internal analysis.
|
|||
|
B.
|
external analysis.
|
|||
|
C.
|
WACC analysis.
|
|||
|
D.
|
economic analysis.
|
|||
|
Answer: B
|
Page: 9
|
Difficulty: Moderate
|
Chapter
Objective: 2
|
|
|
89.
|
If Green Frog undertook an analysis to
help it understand which of its resources and capabilities are likely to be
sources of competitive advantage and which are less likely to sources of such
advantages they would be performing a(n)
|
|||
|
A.
|
internal analysis.
|
|||
|
B.
|
external analysis.
|
|||
|
C.
|
WACC analysis.
|
|||
|
D.
|
economic analysis.
|
|||
|
Answer: A
|
Page: 10
|
Difficulty: Moderate
|
Chapter
Objective: 2
|
|
|
90.
|
If Green Frog were considering expanding
beyond the cosmetics industry into pharmaceuticals in order to gain
competitive advantages by operating in multiple markets and industries this
would be an example of which type of strategy?
|
|||
|
A.
|
Business level strategy
|
|||
|
B.
|
Functional level strategy
|
|||
|
C.
|
Marketing strategy
|
|||
|
D.
|
Corporate level strategy
|
|||
|
Answer: D
|
Page: 11
|
Difficulty: Moderate
|
Chapter
Objective: 2
|
|
ESSAY QUESTIONS
91.
Define the term "strategy," discuss the set of assumptions
and hypotheses that a strategy is based on and discuss what makes a good
strategy.
A firm's strategy
is defined as its theory about how to gain competitive advantages. This theory is based on a set of assumptions
and hypotheses about how competition in this industry is likely to evolve, and
how that evolution can be exploited to earn a profit. To the extent that these assumptions and
hypotheses accurately describe how competition in this industry actually
evolves, the more likely it is that a firm will gain a competitive advantage
from implementing its strategies. Thus,
a "good strategy" is a strategy that actually generates such
advantages.
Page: 5 Difficulty: Moderate Chapter Objective: 1
92.
Define the term "mission" and discuss how a firm's mission
can both positively and negatively impact a firm's performance.
A firm's mission
is its long-term purpose and it defines both what a firm aspires to be in the
long run and what it wants to avoid in the meantime. If a mission statement does not influence
firm behavior, it is unlikely to have an impact on a firm's actions. However, visionary firms, or firms whose
mission is central to all they do, tend to earn substantially higher returns
than average over the long-run even though their mission statements suggest
that profit maximization is not their primary reason for existence. However, missions that are inwardly focused
and defined only with reference to the personal values and priorities of its
founders or top managers, independent of whether or not those values and
priorities are consistent with the economic realities facing a firm are not
likely to be a source of competitive advantage.
Page: 6 Difficulty: Moderate Chapter Objective: 2
93.
What are objectives, what role do they play in the strategic
management process and what differentiates high quality objectives from low
quality objectives.
Objectives are
specific measurable targets a firm can use to evaluate the extent to which it
is realizing its mission. High quality
objectives are tightly connected to elements of a firm's mission and are
relatively easy to measure and track over time.
Low quality objectives either do not exist or are not connected to
elements of a firm's mission, are not quantitative, are difficult to measure or
difficult to track over time.
Page: 9 Difficulty: Moderate Chapter Objective: 2
94.
Differentiate between business level and corporate level strategies
and give examples of each.
Business level
strategies are actions firms take to gain competitive advantages in a single
market or industry. The two most common
business level strategies are cost leadership, such as Wal-Mart, and product
differentiation, such as Macy's.
Corporate level strategies are actions firms take to gain competitive advantages
in multiple markets or industries simultaneously. Common corporate level strategies include
vertical integration strategies, diversification strategies, strategic
alliances strategies and merger and acquisition strategies.
Page: 11 Difficulty: Moderate Chapter Objective: 2
95.
Define strategy implementation and discuss three specific
organizational policies and practices that are particularly important in
implementing a strategy.
Strategy
implementation occurs when a firm adopts organizational policies and practices
that are consistent with its strategy.
Three specific organizational policies and practices are particularly
important in implementing a strategy: a firm's formal organizational structure,
its formal and informal management control systems, and employee compensation
policies.
Page: 11 Difficulty: Moderate Chapter Objective: 2
96.
Discuss the nature of a sustainable competitive advantage. In your answer, identify when a firm has a
competitive advantage, define the term "economic value" and
distinguish between a temporary competitive advantage and a sustainable
competitive advantage.
In general, a
firm has a competitive advantage when it is able to generate more economic
value than rival firms. Economic value
is simply the difference between the perceived benefits gained by a customer
that purchases a firm's products or services and the full economic cost of
these products and services. A temporary
competitive advantage is a competitive advantage that lasts a very short period
of time while a sustained competitive advantage lasts much longer.
Pages: 11-13 Difficulty:
Moderate Chapter Objective: 3
97.
Identify two approaches to estimating a firm's competitive
advantages and discuss the strengths and weaknesses of each.
The two general
approaches to estimating a firm's competitive advantage are measuring
accounting performance and measuring economic performance. A firm's accounting performance is a measure
of its competitive advantage calculated using information from a firm's
published profit and loss and balance sheets and a firm's accounting
performance is determined by comparing a firm's accounting ratios with other
firms in the industry. The greatest
measure of accounting measures of competitive advantage is that they are
relatively easy to compute. The most
significant drawback to accounting measures is that they do not consider a
firm's cost of capital. Additionally,
accounting measures can be difficult to compare across countries.
Economic measures
of competitive advantage compare a firm's level of return to its cost of
capital instead of to the average level of return in the industry. The primary benefit of economic measures is
that if a firm earns at least its cost of capital, it is satisfying two of its
important stakeholders-debt holders and equity holders. Disadvantages of economic measures include
that it can be difficult to calculate a firm's cost of capital, especially for
privately held firms, and economic measures may overstate the importance of
debt and equity holders.
Pages: 15-22 Difficulty:
Moderate Chapter Objective: 4
98.
Describe the difference between emergent and intended
strategies. Why might firms employ an
emergent strategy?
Intended
strategies can best be described as a firm's theories of how to gain a competitive
advantage that are developed as a result of the strategic management
process. Intended strategies are
developed when firms choose and implement their strategies exactly as described
by the strategic management process.
Alternately, emergent strategies are theories of how to gain a
competitive advantage in an industry that emerge over time or that have been
radically reshaped once they are implemented.
Firms employ emergent strategies since some of the information needed to
complete the strategic management process may not be available when firms are
developing their intended strategies.
Page: 22-24 Difficulty:
Moderate Chapter Objective: 5
99.
Why is it important to understand a firm's strategy, even if you are
not a senior manager in a firm?
First, studying
strategy and the strategic management process can give individuals the tools
they need to evaluate the strategies of the firms that may hire them. Second, once an individual is working for a
firm, understanding that firm's strategy, and their place in it, can be very
important to their personal success since the expectations of how they perform
their function will be impacted by the firm's strategy. Finally, while strategic choices are
generally limited to very experienced managers in large organizations, in
smaller and entrepreneurial firms, many employees end up being involved in the
strategic management process.
Pages: 25-27 Difficulty:
Moderate Chapter Objective: 6
100.
Identify the two ways that global considerations can be incorporated
into the strategic management process.
One view suggests that global strategies are a unique category of
strategy, separate from other business and corporate level strategies. Under this view, conceiving of and
implementing international strategies require a set of skills that are
qualitatively different from the skills required to conceive of and implement
other business or corporate strategies.
The second perspective on international strategies views them as a
means by which a firm realizes competitive advantages from implementing its
business and corporate level strategies, rather than as a separate type of
strategy.
Pages:
27-28 Difficulty: Moderate Chapter Objective: 7
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