Strategic Management: A Competitive Advantage Approach, 16e (David)

Chapter 8 Implementing Strategies: Marketing, Finance/Accounting, R&D, and MIS

Issues

1) Which of the following variables is NOT directly affected by market segmentation?

A) Product
B) Place
C) Process
D) Promotion
E) Price
Answer: C
Diff: 2
LO: 8.1: Identify and describe strategic marketing issues vital for strategy implementation.
AACSB: Written and oral communication

2) All of the following are strategic marketing issues or decisions EXCEPT

A) to be a price leader or a price follower.
B) to use operating leverage.
C) to offer a complete or limited warranty.
D) to use heavy, light, or no TV advertising versus online advertising.
E) to use exclusive dealerships or multiple channels of distribution.
Answer: B
Diff: 2
LO: 8.1: Identify and describe strategic marketing issues vital for strategy implementation.
AACSB: Written and oral communication

3) An example of a marketing decision is whether or not to limit the share of business done with
a single customer.
Answer: TRUE
Diff: 2
LO: 8.1: Identify and describe strategic marketing issues vital for strategy implementation.
AACSB: Written and oral communication

4) Name five strategic marketing issues or decisions.

Answer: Student answers may vary. Possible answers include: 1) To use exclusive dealerships
or multiple channels of distribution; 2) To use heavy, light, or no TV advertising versus online
advertising; 3) To limit (or not) the share of business done with a single customer; 4) To be a
price leader or a price follower; 5) To offer a complete or limited warranty; 6) To reward
salespeople based on straight salary, straight commission, or a combination salary/commission;
7) How to make advertisements more interactive to be more effective; and 8) How to take
advantage of Facebook and Twitter conversations about the company and industry.
Diff: 2
LO: 8.1: Identify and describe strategic marketing issues vital for strategy implementation.
AACSB: Written and oral communication

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5) All of the following are true EXCEPT
A) marketing has evolved to be more about building a two-way relationship with consumers.
B) in 2015 the number of LinkedIn users was closer to the number of Facebook users than to the
number of Twitter users.
C) the online community of customers is much quicker, cheaper, and effective to reach than
traditional focus groups and surveys.
D) successful strategy implementation requires a firm to know what people are saying about it
and its products.
E) company websites should enable customers to interact with the firm on a variety of social
media networks.
Answer: B
Diff: 2
LO: 8.2: Explain why social media marketing is an important strategy-implementation tool.
AACSB: Written and oral communication

6) The online community of customers increasingly mirrors the offline community but is much
quicker, cheaper, and effective to reach than traditional focus groups and surveys.
Answer: TRUE
Diff: 2
LO: 8.2: Explain why social media marketing is an important strategy-implementation tool.
AACSB: Written and oral communication

7) The online community of customers is more expensive to reach than traditional focus groups
and surveys.
Answer: FALSE
Diff: 2
LO: 8.2: Explain why social media marketing is an important strategy-implementation tool.
AACSB: Written and oral communication

8) Seemingly minor ethical and questionable actions can catapult these days into huge public
relations problems for companies as a result of the monumental online social and business
communications.
Answer: FALSE
Diff: 1
LO: 8.2: Explain why social media marketing is an important strategy-implementation tool.
AACSB: Written and oral communication

2
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9) Although there are many marketing activities that impact the success or failure of strategy-
implementation efforts, three activities are indicated in the text as being especially important.
What are these three activities? Discuss why they are so important.
Answer: The marketing activities that are especially important to strategy implementation are
engaging customers in social media, market segmentation and product positioning (perceptual
mapping). The online community of customers increasingly mirrors the offline community but is
much quicker, cheaper, and effective to reach than traditional focus groups and surveys.
Successful strategy implementation requires a firm to know what people are saying about it and
its products. Market segmentation is important in strategy implementation for at least three major
reasons. 1. Strategies such as market development, product development, market penetration, and
diversification require increased sales through new markets and products. To implement these
strategies successfully, new or improved market-segmentation approaches are required. 2.
Market segmentation allows a firm to operate with limited resources because mass production,
mass distribution, and mass advertising are not required. Market segmentation enables a small
firm to compete successfully with a large firm by maximizing per-unit profits and per-segment
sales. 3. Market segmentation decisions directly affect marketing mix variables: place,
promotion, and price. Product positioning (perceptual mapping) is important because it is a
severe mistake to assume the firm knows what customers want and expect. Countless research
studies reveal large differences between how customers define service and rank the importance
of different service activities versus how companies view services. What the customer believes is
good service is paramount, not what the producer believes service should be.
Diff: 3
LO: 8.2: Explain why social media marketing is an important strategy-implementation tool.
AACSB: Analytical thinking

10) Which two variables rank as marketing's most important contributions to strategic
management?
A) Diversification and budgeting
B) Marketing penetration and competition
C) Competition and collaboration
D) Product development and market development
E) Market segmentation and product positioning
Answer: E
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

3
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11) Subdividing a market into distinct subsets of customers according to their needs and buying
habits is known as
A) market penetration.
B) product diversification.
C) market segregation.
D) market segmentation.
E) positioning.
Answer: D
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

12) What makes market segmentation an important variable in strategy implementation?

A) It allows a small firm to compete successfully with a large firm.
B) It allows a firm to operate with limited resources.
C) New or improved market-segmentation approaches are required for the successful execution
of market development & market penetration.
D) Market segmentation decisions directly affect marketing mix variables.
E) All of the above
Answer: E
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

13) Why is market segmentation an important variable in the strategy-implementation process?

A) Company strategies do not require increased sales through new markets and products.
B) It allows a firm to operate with no resources.
C) It directly affects marketing mix variables.
D) It allows a firm to minimize per-unit profits and per-segment sales.
E) All of the above
Answer: C
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

14) Matching which factors would allow factories to produce desirable levels without extra
shifts, overtime, or subcontracting?
A) Markets and competitors
B) Competition and positioning
C) Customer behavior and positioning
D) Supply and demand
E) Segments and competitors
Answer: D
Diff: 3
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

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15) Which variable would be considered part of the "product" element of the marketing mix?
A) Advertising
B) Packaging
C) Payment terms
D) Inventory levels and location
E) Publicity
Answer: B
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

16) Which variable would be considered part of the "place" element of the marketing mix?
A) Product line
B) Service level
C) Personal selling
D) Sales territory
E) Discounts and allowances
Answer: D
Diff: 1
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

17) Market penetration can be defined as the subdividing of a market into distinct subsets of
customers according to needs and buying habits.
Answer: FALSE
Diff: 1
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

18) Market segmentation can be defined as the subdividing of a market into distinct subsets of
customers according to needs and buying habits.
Answer: TRUE
Diff: 1
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

19) There are five component variables in the marketing mix: product, place, promotion, price,
and people.
Answer: FALSE
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

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20) With market segmentation, a firm can better operate with limited resources.
Answer: TRUE
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

21) The most common bases for segmenting markets are geographic and demographic.
Answer: TRUE
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

22) The most common bases for segmenting markets are geographic and product.
Answer: FALSE
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

23) Segmentation often reveals that large, random fluctuations in demand actually consist of
several small, predictable, and manageable patterns.
Answer: TRUE
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

24) Segmenting industrial markets is generally simpler and easier than segmenting consumer
markets.
Answer: FALSE
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

25) In general, the Internet makes market segmentation easier.

Answer: TRUE
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

26) Packaging is considered part of the "product" element of the marketing mix.
Answer: TRUE
Diff: 2
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Written and oral communication

6
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27) Matching competition and positioning factors would allow factories to produce desirable
levels without extra shifts, overtime, or subcontracting.
Answer: FALSE
Diff: 3
LO: 8.3: Explain why market segmentation is an important strategy-implementation tool.
AACSB: Analytical thinking

28) What entails developing schematic representations that reflect how your products or services
compare to competitors' on dimensions most important to success in the industry?
A) Perceptual mapping
B) Market segmentation
C) Market penetration
D) Unrelated diversification
E) Capital budgeting
Answer: A
Diff: 1
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

29) Which is NOT a required step in perceptual mapping?

A) Select key criteria that effectively differentiate products or services in the industry.
B) Serve two segments with the same strategy.
C) Plot major competitors' products or services in the resultant matrix.
D) Identify areas in the positioning map where the company's products or services could be most
competitive in the given target market.
E) Develop a marketing plan to position the company's products and services appropriately.
Answer: B
Diff: 3
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

30) An area on a perceptual map without ideal points indicates a

A) market segment.
B) demand void.
C) vacant niche.
D) multidimensional scale.
E) product reposition.
Answer: B
Diff: 2
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

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31) Multidimensional scaling is used in
A) determining the size of a new building.
B) determining the size of a new department.
C) evaluating the amount of high-tech equipment a firm needs.
D) perceptual mapping.
E) market segmentation.
Answer: D
Diff: 2
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

32) Which of the following is true about two different market segments?
A) They can usually be served with the same marketing strategy.
B) They usually require different marketing strategies.
C) They are always in different geographic locations.
D) They are usually interchangeable.
E) All of the above
Answer: B
Diff: 2
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

33) Which of these is NOT a rule for using product positioning as a strategy-implementation
tool?
A) Look for the hole or vacant niche, a segment of the market currently not being served.
B) Do not serve two segments with the same strategy.
C) Position yourself in the middle of the map, if you are one of only two competitors.
D) Position yourself in the middle of the map, if there are more than two competitors.
E) All of these are rules for using product positioning as a strategy-implementation tool.
Answer: D
Diff: 3
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

34) After segmenting markets so a firm can target particular customer groups, the next step is to
find out what customer groups want and expect.
Answer: TRUE
Diff: 2
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

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35) Perceptual mapping entails developing schematic representations that reflect how your
products or services compare to competitors' on dimensions most important to success in the
industry.
Answer: TRUE
Diff: 1
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

36) Serving two segments with the same strategy is not a step in perceptual mapping.
Answer: TRUE
Diff: 2
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Analytical thinking

37) An area on a perceptual map where there is a cluster of ideal points indicates a market
segment.
Answer: TRUE
Diff: 1
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

38) Multidimensional scaling involves examining three or more criteria simultaneously in a

product-positioning analysis.
Answer: TRUE
Diff: 2
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

39) A firm can usually serve two or more market segments with the same strategy.
Answer: FALSE
Diff: 3
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

40) It is okay for firms to create expectations that are slightly above the service the firm can or
will offer, in order to create an effective product-positioning strategy.
Answer: FALSE
Diff: 2
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Analytical thinking

9
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41) Discuss the three rules mentioned in the text for using product positioning as a strategy-
implementation tool.
Answer:
1. Look for the hole or vacant niche, which is a segment of the market currently not being
served.
2. Do not serve two segments with the same strategy. Usually, a strategy successful with one
segment cannot be directly transferred to another segment. 3. Do not position yourself in the
middle of the map. The middle usually indicates a strategy that is not clearly perceived to have
any distinguishing characteristics. This rule can vary with the number of competitors. For
example, when there are only two competitors, as in U.S. presidential elections, the middle
becomes the preferred strategic position.
Diff: 2
LO: 8.4: Explain how to use product positioning (perceptual mapping) as a strategy-
implementation tool.
AACSB: Written and oral communication

42) Which of the following is NOT given as an example of a decision that may require
finance/accounting policies?
A) To extend the time of accounts receivable
B) To establish a certain percentage discount on accounts within a specified period of time
C) To lease or buy fixed assets
D) To use LIFO, FIFO, or a market-value accounting approach
E) To be a price leader or a price follower
Answer: E
Diff: 2
LO: 8.5: Identify and describe strategic finance/accounting issues vital for strategy
implementation.
AACSB: Written and oral communication

43) To be a price leader or a price follower is a decision that may require finance/accounting
policies.
Answer: FALSE
Diff: 2
LO: 8.5: Identify and describe strategic finance/accounting issues vital for strategy
implementation.
AACSB: Analytical thinking

44) Although acquiring needed capital can be an important task, it is not seen as central to
strategy implementation.
Answer: FALSE
Diff: 2
LO: 8.5: Identify and describe strategic finance/accounting issues vital for strategy
implementation.
AACSB: Written and oral communication

10
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45) Name five examples of finance and accounting decisions that may require policies.
Answer: Possible answers include: 1) To raise capital with short-term debt, long-term debt,
preferred stock, or common stock; 2) To lease or buy fixed assets; 3) To determine an
appropriate dividend payout ratio; 4) To use LIFO, FIFO, or a market-value accounting
approach; 5) To extend the time of accounts receivable; 6) To establish a certain percentage
discount on accounts within a specified period of time; 7) To determine the amount of cash that
should be kept on hand.
Diff: 2
LO: 8.5: Identify and describe strategic finance/accounting issues vital for strategy
implementation.
AACSB: Written and oral communication

46) Name three finance and accounting activities especially important in strategy
implementation.
Answer: Possible answers include: 1) Acquire needed capital to implement strategies; perform
EPS-EBIT analysis; 2) Develop projected financial statements to show expected impact of
strategies implemented; 3) Determine the firm's value (corporate valuation) in the event an offer
is received; 4) Decide whether to go public with an Initial Public Offering (IPO); 5) Decide
whether to keep cash offshore that was earned offshore.
Diff: 2
LO: 8.5: Identify and describe strategic finance/accounting issues vital for strategy
implementation.
AACSB: Written and oral communication

47) In low-earning periods, too much ________ in the capital structure of an organization can
endanger stockholders' return and jeopardize company survival.
A) debt
B) liquidity
C) equity
D) cash
E) tax liability
Answer: A
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

11
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48) Which one of the following statements regarding stock issuances is true?
A) They are not always better than debt for raising capital.
B) Their effect on stock price is not a concern.
C) They do not require a company to share future earnings with new shareholders.
D) Dilution of ownership is not a special concern.
E) None of these statements regarding stock issuance is true
Answer: A
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

49) What is the most widely used technique for determining the best combination of debt and
stock?
A) Debt-to-Stock Ratio
B) Earnings Per Share/Earnings Before Interest and Taxes Analysis
C) Gross Profit Analysis
D) Capital Asset Pricing Model
E) Present Value Analysis
Answer: B
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

50) After completing an EPS/EBIT analysis, what conclusions would you make if the debt line is
above the stock line throughout the range of EBIT on the graph?
A) Debt appears to be the best financing alternative.
B) Stock would be the best financing alternative.
C) A combination of debt and stock is probably the best financial alternative.
D) Dividends must be considered before conclusions can be made.
E) The company should be privately owned.
Answer: A
Diff: 3
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Analytical thinking

12
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51) What tends to become a more attractive financing technique when interest rates are high?
A) Stock issuance
B) Debt
C) Cost cutting
D) Borrowing
E) Staying privately owned
Answer: A
Diff: 3
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Analytical thinking

52) Return on Assets is the most widely used technique for determining whether debt, stock, or a
combination of debt and stock is the best alternative for raising capital to implement strategies.
Answer: FALSE
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

53) The primary sources of capital are known as debt and EPS.
Answer: FALSE
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

54) In low earning periods, too much debt in the capital structure of an organization can
endanger stockholders' returns and jeopardize company survival.
Answer: TRUE
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

55) Too much debt in the capital structure of an organization can endanger stockholders' returns
and jeopardize company survival, particularly in periods of high earnings.
Answer: FALSE
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Analytical thinking

13
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56) Additional capital is often required for successful strategy implementation.
Answer: TRUE
Diff: 1
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

57) An EPS/EBIT chart can be constructed to determine the break-even point, where one
financing alternative becomes more attractive than another.
Answer: TRUE
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

58) A reason for concern about the dilution of ownership is the possibility of hostile takeover.
Answer: TRUE
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

59) When additional stock is issued to finance implementation of strategy, the existing
stockholders' ownership and control of the enterprise are strengthened.
Answer: FALSE
Diff: 3
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Analytical thinking

60) Stock issuances are always better than debt for raising capital.
Answer: FALSE
Diff: 2
LO: 8.6: Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a
source of capital to implement strategies.
AACSB: Written and oral communication

14
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61) A benefit of using projected balance sheets and income statements is that
A) the impact of various implementation decisions can be forecasted.
B) money can be put aside to pay future income taxes.
C) insurance needs can be computed.
D) it is useful in analyzing past performance.
E) all of the above
Answer: A
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

62) Projected financial analysis is an important strategy-implementation technique because

A) it is an exact measurement of financial costs in the future.
B) it is an exact measurement of future company profits.
C) it allows an organization to examine the expected results of strategies being implemented.
D) insurance needs can be computed.
E) none of the above
Answer: C
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

63) What is a central strategy-implementation technique that allows an organization to examine

the expected results of various strategy implementation decisions?
A) EPS/EBIT
B) Financial budgeting
C) TOWS analysis
D) Projected financial statement analysis
E) External analysis
Answer: D
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

15
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64) The first step in performing projected financial analysis is to
A) prepare the projected balance sheet.
B) take an inventory of goods.
C) estimate increases in debt.
D) forecast sales as accurately as possible.
E) calculate the projected net income.
Answer: D
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

65) In preparing projected statements, to project cost of goods sold in the income statement,
which of these methods is recommended?
A) Net Worth Method
B) Net Income Method
C) Percentage-of-Sales Method
D) Price-Earnings Ratio method
E) Outstanding Shares Method
Answer: C
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

66) Which element in the projected income statement CANNOT be forecasted using the
percentage-of-sales method?
A) Cost of goods sold
B) Selling expense
C) Administrative expense
D) Interest expense
E) All of these items can be forecasted using the percentage-of-sales method.
Answer: D
Diff: 3
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

16
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67) The amount by which retained earnings changes is obtained by subtracting
A) any dividends to be paid for that year from net income.
B) net income from EBIT.
C) taxes from EBIT.
D) interest expense from EBIT.
E) EBIT from CGS.
Answer: A
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

68) In projected financial statements, what is used as a plug figure?

A) Retained earnings
B) Fixed assets
C) The Cash Account
D) Long-term liabilities
E) Stockholders' equity
Answer: C
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

69) If a firm incurs a loss during a particular year, or if the firm paid out more in dividends than
it had in net income, what happens to the retained earnings (RE) amount?
A) It increases.
B) It is unchanged.
C) It decreases.
D) It doubles.
E) It cannot be determined from the information given.
Answer: C
Diff: 3
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Analytical thinking

17
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70) Which is NOT a step in performing a projected financial analysis?
A) Prepare the projected income statement before preparing the balance sheet
B) Forecast sales as accurately as possible
C) Use the percentage-of-sales method to project CGS
D) Subtract from the net income any dividends to be paid for that year and bring this retained
earnings amount over to the balance sheet
E) Use the revenue account as the plug figure
Answer: E
Diff: 3
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

71) A projected financial analysis can be used to forecast the impact of various implementation
decisions.
Answer: TRUE
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

72) When performing projected financial analysis, the balance sheet should be prepared before
the income statement.
Answer: FALSE
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

73) The percentage-of-sales method should be used for projecting the cost of goods sold in the
income statements.
Answer: TRUE
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

74) The percentage-of-sales method should be used for projecting interest and taxes, but not
dividends, in the income statements.
Answer: FALSE
Diff: 3
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

18
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75) The cash account is used as the plug figure in projected balance sheets.
Answer: TRUE
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Written and oral communication

76) The Sarbanes-Oxley Act has eliminated the problem of firms inflating their financial
projections, so stakeholders no longer have to worry about the reliability of the financial
projections of different companies.
Answer: FALSE
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Ethical understanding and reasoning

77) The effects of the Sarbanes-Oxley Act include increased inflation of financial projections.
Answer: FALSE
Diff: 2
LO: 8.7: Develop projected financial statements to reveal the impact of strategy
recommendations.
AACSB: Ethical understanding and reasoning

78) Which of the following is NOT an accepted approach for determining a business's worth?
A) The Net Worth Method
B) The Net Income Method
C) The Return on Investment Method
D) The Price-Earnings Ratio Method
E) The Outstanding Shares Method
Answer: C
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

79) Which item is included in net worth?

A) Retained earnings
B) Common stock
C) Additional paid-in-capital
D) All of the above are included in net worth.
E) None of the above are included in net worth.
Answer: D
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

19
Copyright © 2017 Pearson Education, Inc.
80) Which method of determining a firm's net worth divides the market price of the firm's stock
by the annual earnings per share, and multiplies this number by the firm's average net income for
the past five years?
A) Debt/Equity Method
B) Current Ratio Method
C) Price-Earnings Ratio Method
D) Long-term Asset Method
E) Outstanding Shares Method
Answer: C
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

81) Evaluating the worth of a firm

A) is an exact science.
B) requires both qualitative and quantitative skills.
C) is based solely on financial facts.
D) is known only to the firm's accountants.
E) is static.
Answer: B
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Analytical thinking

82) The Financial Accounting Standard Board (FASB) Rule 142 deals with
A) illegal inflation of financial projections.
B) hacking issues in MIS.
C) goodwill.
D) how firms conduct R&D.
E) improving marketing policies.
Answer: C
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

83) In the context of a balance sheet, goodwill represents

A) a premium paid over the book value for an acquisition.
B) the value attached to a firm's reputation.
C) the excess of assets over liabilities.
D) the value associated with benefits from environmental programs.
E) the excess of current assets over liabilities.
Answer: A
Diff: 3
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

20
Copyright © 2017 Pearson Education, Inc.
84) A conservative rule of thumb is to establish a business' worth as ________ the firm's current
annual profit.
A) twice
B) three times
C) five times
D) ten times
E) fifteen times
Answer: C
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

85) All the methods for determining a business' worth can be grouped into three basic
approaches: what a firm earns, what a firm spends, and what a firm will bring in the market.
Answer: FALSE
Diff: 3
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Analytical thinking

86) Four common corporate Valuation methods are the Net Worth Method, the Net Income
Method, the Price-Earnings Ratio Method, and the Outstanding Shares Method.
Answer: TRUE
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

87) Four common corporate Valuation methods are the Net Worth Method, the Net Income
Method, the Gross Income Method, and the Outstanding Shares Method.
Answer: FALSE
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

88) A conservative rule of thumb is to establish a business' worth to be 10 times the firm's most
current annual profit.
Answer: FALSE
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

89) One of the four recommended approaches for determining a firm's worth is to base the
analysis on the selling price of a similar company.
Answer: FALSE
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

21
Copyright © 2017 Pearson Education, Inc.
90) To determine the price-earnings ratio, divide the Earnings per Share (EPS) by the stock
price.
Answer: FALSE
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

91) As a balance sheet entry, goodwill represents the favor a business has acquired through its
environmentally conscious and socially responsible actions.
Answer: FALSE
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

92) The only reasons businesses have for determining their worth is preparing to be sold or to
buy other companies.
Answer: FALSE
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

93) Identify and describe the four corporate valuation methods (approaches for determining a
business' monetary value).
Answer: 1) Net Worth Method: Total Shareholders' Equity (SE) minus (Goodwill + Intangibles)
After calculating total Shareholders' Equity (or Owners Equity, if applicable), subtract any
amounts for goodwill and intangibles that appear as assets on the firm's balance sheet; 2) Net
Income Method: Net Income times Five. A conservative rule of thumb is to establish a business's
worth as five times the firm's current annual profit. A 5-year average profit level could also be
used; 3) Price-Earnings Ratio Method: Stock Price divided by EPS) times NI. To use this
method, divide the market price of the firm's common stock by the annual earnings per share
(EPS) and multiply this number by the firm's average net income for the past five years; 4)
Outstanding Shares Method: Number of Shares Outstanding times Stock Price To use this
method, simply multiply the number of shares outstanding by the market price per share. The
value obtained by the Outstanding Shares Method may also be called the market value or market
capitalization.
Diff: 2
LO: 8.8: Determine the cash value of any business using four corporate evaluation methods.
AACSB: Written and oral communication

22
Copyright © 2017 Pearson Education, Inc.
94) If an initial stock issuance is $800,000, what would be the expected cost paid to lawyers,
accountants, and underwriters, based on the average for IPOs in this range?
A) $20,000
B) $40,000
C) $80,000
D) $200,000
E) $400,000
Answer: D
Diff: 2
LO: 8.9: Discuss IPOs, keeping cash offshore, and issuing corporate bonds as strategic decisions
that face many firms.
AACSB: Application of knowledge

95) What portion of the firms going public in 2014 were unprofitable?
A) Less than one tenth
B) About one quarter
C) About one half
D) Nearly three quarters
E) Nearly all
Answer: D
Diff: 2
LO: 8.9: Discuss IPOs, keeping cash offshore, and issuing corporate bonds as strategic decisions
that face many firms.
AACSB: Written and oral communication

96) Many U.S. firms with a large percentage of their revenues derived in foreign countries prefer
to leave their cash outside the United States because using those funds to pay dividends or
purchase treasury stock would
A) promote foreign investment.
B) decrease foreign exchange.
C) inflate stock prices.
D) create pressure for decreased exporting.
E) require a big U.S. corporate income tax payment.
Answer: E
Diff: 3
LO: 8.9: Discuss IPOs, keeping cash offshore, and issuing corporate bonds as strategic decisions
that face many firms.
AACSB: Analytical thinking

97) It is generally not recommended for companies with less than $10 million in sales to go
public.
Answer: TRUE
Diff: 2
LO: 8.9: Discuss IPOs, keeping cash offshore, and issuing corporate bonds as strategic decisions
that face many firms.
AACSB: Written and oral communication

23
Copyright © 2017 Pearson Education, Inc.
98) The only costs involved in going public are the initial costs.
Answer: FALSE
Diff: 1
LO: 8.9: Discuss IPOs, keeping cash offshore, and issuing corporate bonds as strategic decisions
that face many firms.
AACSB: Written and oral communication

99) Decisions about an initial public offering are better described as being finance and
accounting matters than as marketing matters.
Answer: TRUE
Diff: 2
LO: 8.9: Discuss IPOs, keeping cash offshore, and issuing corporate bonds as strategic decisions
that face many firms.
AACSB: Analytical thinking

100) What is the meaning of the term "going public"? Explain the important issues involved in
deciding whether to go public. Include cost estimates, advantages and disadvantages.
Answer: Going public means selling off a percentage of a company to others to raise capital. It
dilutes the owners' control of the firm. Going public is not recommended for companies with less
than $10 million in sales, because the initial costs can be too high for the firm to generate
sufficient cash flow to make going public worthwhile. The average total cost paid to lawyers,
accountants, and underwriters when the initial issuance is under $1 million is 25 percent. For
issuances over $20 million this amount drops to 5 percent. In addition to initial costs, there are
costs and obligations associated with reporting and management in a publicly held firm. For
firms with more than $10 million in sales, going public can provide major advantages: It can
allow the firm to raise capital to develop new products, build plants, expand, grow, and market
products and services more effectively.
Diff: 2
LO: 8.9: Discuss IPOs, keeping cash offshore, and issuing corporate bonds as strategic decisions
that face many firms.
AACSB: Analytical thinking

101) R&D employees and managers perform all of the following tasks EXCEPT
A) transferring complex technology.
B) altering products to particular tastes and specifications.
C) researching resource availability.
D) adapting processes to local markets.
E) adjusting processes to local raw materials.
Answer: C
Diff: 2
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Written and oral communication

24
Copyright © 2017 Pearson Education, Inc.
102) The current attitude of U.S. firms toward research and development is best described by
which of the following?
A) The veil of secrecy is being lifted, resulting in more collaboration.
B) Firms are more cutthroat than ever and less cooperative with each other.
C) Firms are less interested in working with universities.
D) Firms are feeling less competitive pressure.
E) Firms are less involved with research consortia than ever.
Answer: A
Diff: 2
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Written and oral communication

103) If the rate of market growth and technical progress is rapid, then in-house R&D is the
preferred solution.
Answer: FALSE
Diff: 2
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Written and oral communication

104) According to research, the most successful new product companies use a research and
development strategy that ties internal strengths to external opportunities and is linked with
objectives.
Answer: TRUE
Diff: 3
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Written and oral communication

105) R&D issues include emphasis on product or process improvements.

Answer: TRUE
Diff: 2
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Written and oral communication

106) A major effort in R&D may be risky if technology is changing rapidly and the market is
growing slowly.
Answer: TRUE
Diff: 2
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Written and oral communication

25
Copyright © 2017 Pearson Education, Inc.
107) One major R&D approach is to be an innovative imitator of successful products.
Answer: TRUE
Diff: 1
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Written and oral communication

108) A current trend in R&D management involves the lifting of the veil of secrecy whereby
firms, even major competitors, are joining forces to develop new products.
Answer: TRUE
Diff: 2
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Written and oral communication

109) Discuss guidelines used to determine whether a firm should conduct R&D internally or
externally.
Answer: First, if the rate of technical progress is slow, the rate of market growth is moderate,
and there are significant barriers to possible new entrants, then in-house R&D is the preferred
solution. Second, if technology is changing rapidly, and the market is growing slowly, then a
major in-house effort in R&D may be risky. Third, if technology is changing slowly but the
market is growing quickly, there generally is not enough time for in-house development. Finally,
if both technical progress and market growth are fast, R&D expertise should be obtained through
acquisition of a well-established firm in the industry.
Diff: 2
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Analytical thinking

110) Discuss three major R&D approaches for implementing strategies.

Answer: 1) Be the first firm to market new technological products. This is a glamorous and
exciting strategy but also a dangerous one. Firms such as 3M, Apple, and General Electric have
been successful with this method, but many other pioneering firms have fallen, with rival firms
seizing the initiative. 2) Be an innovative imitator of successful products, thus minimizing the
risks and costs of a "startup." This approach entails allowing a pioneer firm to develop the first
version of the new product and to demonstrate that a market exists. Then, laggard firms develop
a similar product. This strategy requires excellent R&D and marketing personnel. 3) Be a low-
cost producer by mass-producing products similar to but less expensive than products recently
introduced. As a new product is accepted by customers, price becomes increasingly important in
the buying decision. Also, mass marketing replaces personal selling as the dominant selling
strategy. This approach requires substantial investment in plant and equipment, but fewer
expenditures in R&D than the other two approaches. Dell and Lenovo have utilized this third
approach to gain competitive advantage.
Diff: 2
LO: 8.10: Discuss the nature and role of research and development (R&D) in strategy
implementation.
AACSB: Analytical thinking
26
Copyright © 2017 Pearson Education, Inc.
111) Which statement is NOT true?
A) Having an effective management information system may be the most important factor in
differentiating successful from unsuccessful firms.
B) Like inventory and human resources, information is now recognized as a valuable
organizational asset that can be controlled and managed.
C) Computer vulnerability has nearly been eradicated by recent innovations, and it is now
possible to secure and safeguard all corporate communications, files, and business conducted
over the Internet.
D) In many firms, information technology is allowing employees to work at home or anywhere,
anytime.
E) Improved quality and service often result from an improved management information system.
Answer: C
Diff: 2
LO: 8.11: Explain how management information systems (MISs) impact strategy-
implementation efforts.
AACSB: Written and oral communication

112) Information collection, retrieval, and storage can be used to create competitive advantages
in ways such as
A) cross-selling to customers.
B) monitoring suppliers.
C) keeping managers and employees informed.
D) coordinating activities among divisions.
E) all of the above
Answer: E
Diff: 1
LO: 8.11: Explain how management information systems (MISs) impact strategy-
implementation efforts.
AACSB: Information technology

113) Which of the following is NOT a current development or trend?

A) Efforts to repeal federal laws currently preventing businesses from using GPS devices to
monitor employees
B) Tracking the location of employees through company provided hand-held devices
C) The use of smartphones as hotel room keys
D) Desktop videoconferencing
E) Assertions by employees that employers are invading their privacy with various monitoring
practices
Answer: A
Diff: 1
LO: 8.11: Explain how management information systems (MISs) impact strategy-
implementation efforts.
AACSB: Written and oral communication

27
Copyright © 2017 Pearson Education, Inc.
114) The process of strategic management is facilitated immensely in firms that have an effective
information system.
Answer: TRUE
Diff: 2
LO: 8.11: Explain how management information systems (MISs) impact strategy-
implementation efforts.
AACSB: Written and oral communication

115) Increased costs are a disadvantage of a good information system.

Answer: FALSE
Diff: 2
LO: 8.11: Explain how management information systems (MISs) impact strategy-
implementation efforts.
AACSB: Written and oral communication

116) Information technology has made it is possible for many firms to have employees who
work at home or anywhere, anytime.
Answer: TRUE
Diff: 2
LO: 8.11: Explain how management information systems (MISs) impact strategy-
implementation efforts.
AACSB: Written and oral communication

117) Discuss some ways in which management information systems can benefit a company.
Answer: Having an effective management information system (MIS) may be the most important
factor in differentiating successful from unsuccessful firms. Information collection, retrieval, and
storage can be used to create competitive advantages in ways such as cross-selling to customers,
monitoring suppliers, keeping managers and employees informed, coordinating activities among
divisions, and managing funds. Information is a valuable organizational asset that can be
controlled and managed. A good information system can allow a firm to reduce costs. Improved
quality and service often result from an improved information system.
Diff: 2
LO: 8.11: Explain how management information systems (MISs) impact strategy-
implementation efforts.
AACSB: Information technology

28
Copyright © 2017 Pearson Education, Inc.