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


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

E) A) and D)
F) A) and C)

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


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

E) B) and C)
F) A) and C)

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A sustainable strategy is one that produces a competitive advantage that can be maintained over time.

A) True
B) False

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False

It is April 2018 and Mark is a novice investor who wants to decide between purchasing shares in EagleCorp or Myna Bird Inc. In fiscal year 2017, EagleCorp's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Myna Bird Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell Mark?


A) Myna Bird Inc. is more likely to create value while EagleCorp is more likely to destroy value.
B) EagleCorp is more likely to create value while Myna Bird Inc. is more likely to destroy value.
C) Both Myna Bird Inc. and EagleCorp are likely to create value.
D) Neither Myna Bird Inc. nor EagleCorp are likely to create value.

E) None of the above
F) B) and D)

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Unplug Wireless is a cellular service provider that charges its customers $1 for three hours of talk time. So, if a customer's talk time for a month is 60 hours, the company charges him or her $20 at the end of the month. Which of the following business models does this best illustrate?


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

E) A) and B)
F) A) and D)

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


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

E) A) and D)
F) B) and C)

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________ are the legal owners of public companies.


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

E) All of the above
F) C) and D)

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


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

E) B) and C)
F) A) and B)

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________ is a business model in which the manufacturer sets a fixed price on a product, but the retailer is free to set it's own price.


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

E) B) and D)
F) C) and D)

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D

Happy Foods and General Grains both produce similar puffed rice breakfast cereals. For both companies, the cost of producing a box of cereal is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other?


A) Increase total perceived consumer benefits through differentiation.
B) Raise prices above the current reservation price.
C) Lower prices to the break-even price.
D) Increase the number of stock market shares available to investors.

E) A) and C)
F) B) and C)

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You are the CEO of a home appliance manufacturing company and have recently undertaken a review of your company's strategy. In comparing your stock market valuation to that of your closest competitor, you note that your firm is currently valued at $50 billion, while your competitor is valued at $40 billion. How should you proceed?


A) Consider this evidence of a sustainable competitive advantage and maintain your current strategy.
B) Compare the current valuations with past valuations to determine a trend.
C) Assume your current strategy has failed and begin to formulate a new one.
D) Compare your valuation to firms in another industry.

E) A) and D)
F) B) and C)

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Elena is the CEO of Geode Technologies, a consumer electronics manufacturer. Last year, Geode's return on invested capital (ROIC) was 11.6 percent, while Geode's closest competitor, NorthWest Tech, had an ROIC of 17 percent. Which of the following factors might Elena use to convince investors to invest in Geode rather than NorthWest Tech?


A) Geode had a Research & development (R&D) expense / Revenue ratio of 16 percent, while NorthWest Tech had an R&D / Revenue ratio of 12 percent.
B) Geode's working capital to revenue ratio was 75 percent, while NorthWest Tech's was 68 percent.
C) Geode's intangible intensity was 6 percent, while NorthWest Tech's was 3 percent.
D) Geode's plant, property, and equipment (PPE) over revenue ratio was 19 percent, while NorthWest Tech's was 10 percent.

E) B) and C)
F) All of the above

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C

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


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

E) B) and D)
F) C) and D)

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


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

E) A) and B)
F) A) and C)

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


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

E) A) and B)
F) A) and C)

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A manager's only responsibility is to monitor and assess the performance of his or her firm.

A) True
B) False

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


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

E) B) and D)
F) All of the above

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Discuss the four key questions managers need to answer when using the balanced scorecard to develop strategic objectives.

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The four key questions are:
1. How do cu...

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


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

E) None of the above
F) B) and D)

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What does "total return to shareholders" mean?

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Investors are primarily interested in a ...

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