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Strategic Management-Chapter 8

An area on a perceptual map where there is a cluster of ideal points indicates a market segment.
True
Strategy implementation affects top and middle managers but not lower-level employees.
False
An example of a marketing decision is whether or not to limit the share of business done with a single customer.
True
Editorial content and advertising content are increasingly being mixed on blogs.
True
Market penetration can be defined as the subdividing of a market into distinct subsets of customers according to needs and buying habits.
False
There are five component variables in the marketing mix: product, place, promotion, price, and people.
False
With market segmentation, a firm can better operate with limited resources.
True
The most common bases for segmenting markets are geographic and demographic.
True
Segmentation often reveals that large, random fluctuations in demand actually consist of several small, predictable, and manageable patterns.
True
Segmenting industrial markets is generally simpler and easier than segmenting consumer markets.
False
The most dramatic new market-segmentation strategy is the targeting of regional tastes.
True
After segmenting markets so a firm can target particular customer groups, the next step is to find out what customer groups want and expect.
True
In general, the Internet makes market segmentation easier.
True
Multidimensional scaling involves examining three or more criteria simultaneously in a product-positioning analysis.
True
A firm can usually serve two or more market segments with the same strategy.
False
It is okay for firms to create expectations that exceed the service the firm can or will offer if it will attract customers.
False
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.
False
Besides net profit from operations and the sale of assets, two basic sources of funds for an ongoing enterprise are debt and equity.
True
In low earning periods, too much debt in the capital structure of an organization can endanger stockholders’ returns and jeopardize company survival.
True
Additional capital is often required for successful strategy implementation.
True
An EPS/EBIT chart can be constructed to determine the break-even point, where one financing alternative becomes more attractive than another.
True
A reason for concern over the dilution of company stock is a possible hostile takeover.
True
When additional stock is issued to finance implementation of strategy, ownership and control of the enterprise are strengthened.
False
Stock issuances are always better than debt for raising capital.
False
A projected financial analysis can be used to forecast the impact of various implementation decisions.
True
When performing projected financial analysis, the balance sheet should be prepared before the income statement.
False
The percentage-of-sales method should be used for projecting the cost of goods sold and the expense items in the income statements.
True
The cash account is used as the plug figure in projected balance sheets.
True
The Sarbanes-Oxley Act has eliminated the problem of firms inflating their financial projections, so stakeholders need not worry about the financial projections of different companies.
False
A financial budget is a document that details how funds will be obtained and spent for a specified period of time.
True
Limiting an organization’s expenditures is the primary purpose of financial budgets.
False
The most common type of financial budget is the capital budget.
False
Although cash budgets can be a useful financial tool, publicly held companies are not required to complete them.
False
A limitation of financial budgets is that they can hide inefficiencies if based solely on precedent rather than on periodic evaluation of circumstances and standards.
True
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.
False
A conservative rule of thumb for measuring the value of a firm is to establish a business’ worth to be 10 times the firm’s most current annual profit.
False
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.
False
To determine the price-earnings ratio, divide the market price of the firm’s annual earnings per share by the common stock and multiply this number by the firm’s average net income for the past 10 years.
False
As a balance sheet entry, goodwill represents the favor a business has acquired through its environmentally conscious and socially responsible actions.
False
The only reasons businesses have for determining their worth is preparing to be sold or to buy other companies.
False
It is generally not recommended for companies with less than $10 million in sales to go public.
True
The only costs involved in going public are the initial costs.
False
Buying off the outstanding shares of your company from the open market to make the company private is what going public means.
False
If the rate of market growth and technical progress is rapid and there are few barriers to possible new entrants, then in-house R&D is the preferred solution.
False
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.
True
R&D policies can enhance strategy implementation efforts to emphasize product or process improvements.
True
A major effort in R&D may be very risky if technology is changing rapidly and the market is growing slowly.
True
One R&D strategy is to be an innovative imitator of successful products.
True
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.
True
The process of strategic management is facilitated immensely in firms that have an effective information system.
True
Increased costs are a disadvantage of a good information system.
False
With information technology, in some cases it is possible to do away with the workplace by allowing employees to work at home or anywhere, anytime.
True
What percent of strategies formulated are successfully implemented?
A) Less than 10 percent
B) About 30 percent
C) Between 40 and 60 percent
D) Approximately 66 percent
E) More than 80 percent
A) Less than 10 percent
What level of management is directly affected by strategy implementation?
A) Plant managers
B) Sales managers
C) Project managers
D) Division managers
E) All of the above
E) All of the above
All of the following are examples of marketing decisions that may require policies EXCEPT
A) to be a market leader or follower.
B) how to make advertisements more interactive to be more effective.
C) to offer a complete or limited warranty.
D) to use heavy, light, or no TV advertising.
E) to use exclusive dealerships or multiple channels of distribution.
A) to be a market leader or follower.
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.
E) Market segmentation and product positioning.
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.
D) market segmentation.
Why is 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) Mass production, mass distribution, and mass advertising are not always required.
D) Market segmentation decisions directly affect marketing mix variables.
E) All of the above
E) All of the above
Which of the following variables is NOT directly affected by market segmentation?
A) Product
B) Place
C) Process
D) Promotion
E) Price
C) Process
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
C) It directly affects marketing mix variables.
Perhaps the most dramatic new market segmentation strategy is the
A) targeting of regional tastes.
B) focusing on universal product.
C) preference of international over domestic sales.
D) treatment of industrial markets.
E) none of the above
A) targeting of regional tastes.
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
D) Supply and demand
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
B) Packaging
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
D) Sales territory
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
A) Perceptual mapping
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.
B) Serve two segments with the same strategy.
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.
B) demand void.
Multidimensional scaling is used to determine
A) the size of a new building.
B) the size of a new department.
C) the amount of high-tech equipment a firm needs.
D) perceptual mapping.
E) market segmentation.
D) perceptual mapping.
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
B) They usually require different marketing strategies.
Which of these is NOT a rule of thumb when using product positioning as a strategy-implementation tool?
A) “The best opportunity might be an unserved segment.”
B) “Look for the hole or vacant niche.”
C) “Try to serve more than one segment with the same strategy.”
D) “Don’t position yourself in the middle of the map.”
E) All of these are valid rules of thumb.
C) “Try to serve more than one segment with the same strategy.”
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
E) To be a price leader or a price follower
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
A) debt
Which of the following is NOT true regarding stock issuances?
A) They are always better than debt for raising capital.
B) Their effect on stock price is a concern.
C) They can require a company to share future earnings with all new shareholders.
D) Dilution of ownership is a special concern.
E) All of the above statements are true.
A) They are always better than debt for raising capital.
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
B) Earnings per share/earnings before interest and taxes analysis
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.
A) Debt appears to be the best financing alternative.
What becomes a more attractive financing technique when cost of capital is high?
A) Stock issuance
B) Debt
C) Cost cutting
D) Borrowing
E) Staying privately owned
A) Stock issuance
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 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 doing away with the workplace and allowing employees to work at home or anywhere, anytime.
E) Improved quality and service often result from an improved management information system.
C) Computer vulnerability has been eradicated by recent innovations, and it is now possible to secure and safeguard all corporate communications, files, and business conducted over the Internet.
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
A) the impact of various implementation decisions can be forecasted.
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 various actions and approaches.
D) insurance needs can be computed.
E) none of the above
C) it allows an organization to examine the expected results of various actions and approaches.
What is a central strategy-implementation technique that allows an organization to examine the expected results of various actions and approaches?
A) EPS/EBIT
B) Financial budgeting
C) TOWS analysis
D) Projected financial statement analysis
E) External analysis
D) Projected financial statement analysis
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) prepare the projected income statement.
E) calculate the projected net income.
D) prepare the projected income statement.
In preparing projected statements, to project cost of goods sold and the expense items in the income statement, which of these methods is recommended?
A) Determining the net worth method
B) What a firm earns method
C) Percentage-of-sales method
D) Price-earnings ratio method
E) Outstanding shares method
C) Percentage-of-sales method
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.
D) Interest expense
Retained earnings 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.
A) any dividends to be paid for that year from net income.
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
C) The cash account
Which of these is the most common type of budgeting time frame?
A) Daily
B) Quarterly
C) Annual
D) Every decade
E) Monthly
C) Annual
If a firm incurs a loss during a particular year, or if the firm had positive net income but paid out dividends more than the net income, what happens to the RE amount?
A) It increases.
B) It is unchanged.
C) It decreases.
D) It doubles.
E) It cannot be determined from the information given.
C) It decreases.
What is the most common type of financial budget?
A) Cash
B) Sales
C) Profits
D) Factory
E) Flexible
A) Cash
Who has mandated that every publicly held company in the United States must issue an annual cash-flow statement in addition to the usual financial reports?
A) SEC
B) Congress
C) FCC
D) FASB
E) OPEC
D) FASB
How should financial budgets be thought of?
A) As a tool for limiting expenditures
B) As a method for obtaining the most productive and profitable use of an organization’s resources
C) As a method for rationing the profits from the past year
D) As a method for determining who should receive the largest pay raise
E) As a tool for forecasting future profits
B) As a method for obtaining the most productive and profitable use of an organization’s resources
What is a limitation of using financial budgets?
A) They can be so detailed that they are cumbersome and expensive.
B) They can become a substitute for objectives.
C) They can hide inefficiencies if done only on precedent.
D) They are sometimes used as instruments of tyranny.
E) All of the above
E) All of the above
Which of the following is NOT an accepted approach for determining a business’ worth?
A) Determining what the firm owns
B) Determining what the firm earns
C) Determining what the firm’s return on investment has been
D) Determining what the firm will bring in the market
E) All of the above are accepted approaches.
C) Determining what the firm’s return on investment has been
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.
D) All of the above are included in net worth.
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
C) Price-earnings ratio method
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.
B) requires both qualitative and quantitative skills.
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.
C) goodwill.
In the context of a balance sheet, goodwill represents
A) a premium paid over the book value of 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.
A) a premium paid over the book value of an acquisition.
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
C) five times
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
D) $200,000
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.
C) researching resource availability.
Business analytics
A) is retrospective rather than predictive.
B) enables a firm to learn from experience and to make current and future decisions based on prior information.
C) uses mathematical models that enhance decision making at only the topmost levels of management.
D) can enable a company to benefit from measuring risk, but it cannot enable the company to manage risk.
E) as an industry is experiencing a decline in revenue.
B) enables a firm to learn from experience and to make current and future decisions based on prior information.
The 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.
A) The veil of secrecy is being lifted, resulting in more collaboration.
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
E) all of the above

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