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Chapter 05 Competitive Advantage, Firm Performance, and Business
Models Answer Key
Multiple Choice Questions
1.
The three financial ratios that constitute return on revenue are Cost of goods
sold/Revenue, Research & Development expense/Revenue, and
2.
_____ precisely indicates how much of a firm's sales is converted into profits.
3.
The ratio Cost of goods sold/Revenue indicates how efficiently a company can
4.
Apple Watch retailed for $349 in 2015, and the firm was predicted to sell millions of units.
The firm's total cost in terms of materials and labor for the Apple Watch was no more than
$84. Thus, Apple's profit for each watch sold is an estimated $265, with a profit margin of
_____ percent.
5.
A high percentage of R&D/Revenue ratio indicates a(n)
6.
_____ is best described as a measure of how effectively capital is being used by a firm to
generate revenue.
7.
The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data
suggest?
8.
The working capital of a small home-based business is $200,000. The revenues generated
account to $600,000, and the profits incurred are $300,000. What would be the company's
working capital turnover?
9.
_____ most precisely measures how well a company leverages its fixed assets, particularly
property, plant, and equipment (PPE).
10.
The fixed asset turnover of a company is 8.3. What do you infer from this?
11.
Which of the following
best
expresses fixed asset turnover?
12.
Which of the following ratios
best
expresses inventory turnover?
13.
_____ indicates how fast a firm is collecting the credit amount extended by a firm to its
customers.
14.
_____ indicates how much a firm benefits from interest-free loans extended by its
suppliers and creditors.
15.
In 2014, Apple had a return on revenue of 29.3 percent, and Microsoft had a return on
revenue of 32 percent. Even so, Apple had a higher return on invested capital than
Microsoft. Why did this happen?
16.
The receivables turnover of VK Products Inc. is 13.6 and that of its competitor DL Goods
Inc. is 6.0. What does this financial data primarily imply?
17.
In 2014, Apple turned over its inventory more than 53 times. In stark contrast, Microsoft
turned over its inventory only about 10 times during the year. Which of the following
best
explains this difference?
18.
Which of the following statements is true of accounting data?
19.
Which of the following competitively important assets is typically excluded from a firm's
balance sheet?
20.
_____ are the legal owners of public companies.
21.
Which of the following is an external performance metric?
22.
From an investors' or shareholders' perspective, the measure of competitive advantage
that matters most is the
23.
Which of the following is
not
true of risk capital?
24.
Return on risk capital primarily includes
25.
_____, which is the return on risk capital, includes stock price appreciation plus dividends
received over a specific period.
26.
A firm has 30 million shares outstanding, and each share is traded at $100. Also, each
shareholder gets a dividend of $2,000 annually. In this case, the market capitalization is
27.
The market capitalization of a public company is $5 billion. Each share of the company is
traded at $200. What do you infer from this financial data?
28.
Which of the following expressions accurately describes market cap?
29.
Unlike the financial ratios based on accounting data, total return to shareholders is
30.
Which of the following is a disadvantage of measuring firm performance through total
return to shareholders and firm market capitalization?
31.
_____ is best described as the difference between a buyer's willingness to pay for a
product or service and a firm's total cost to produce it.
32.
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
33.
Both Vibrant Phones Inc. and Oryxo Inc. incur a cost of $200 to manufacture a single unit
of a cell phone. However, Vibrant Phones creates more economic value than Oryxo does.
What does this imply?
34.
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?
35.
A firm incurs $100 to manufacture an office table. It fixes the market price of the table as
$250, and discounts the price to $200. However, the maximum a person is willing to pay
for it is $180. What is the amount of total perceived consumer benefits in this scenario?
