CHAPTER 8
  • 1. Why are finance and accounting important in strategy implementation?
A) Strategies can be implemented without them
B) They reduce competition
C) Strategies succeed only if finances are managed well
D) They are only needed for reporting
  • 2. Finance and accounting activities are considered ______ to strategy implementation.
A) Central
B) Optional
C) Irrelevant
D) Secondary
  • 3. Financial knowledge gives strategists a:
A) Political advantage
B) Legal advantage
C) Competitive advantage
D) Cultural advantage
  • 4. Capital structure refers to the:
A) Mix of debt and equity
B) Level of profits
C) Amount of cash on hand
D) Market value of stock
  • 5. EPS/EBIT analysis is used to:
A) Evaluate competitors
B) Measure employee productivity
C) Decide the best capital structure
D) Forecast sales
  • 6. EPS stands for:
A) Estimated Profit Share
B) Equity Per Share
C) Earnings Per Stock
D) Earnings Per Share
  • 7. EBIT means:
A) Earnings After Taxes
B) Equity Before Interest and Taxes
C) Earnings Before Interest and Taxes
D) Earnings Before Income Taxes
  • 8. EAT refers to:
A) Earnings And Taxes
B) Earnings At Time
C) Earnings After Taxes
D) Equity After Taxes
  • 9. Which is the first step in EPS/EBIT analysis?
A) Gather input data
B) Compute EPS
C) Graph EPS and EBIT
D) Calculate taxes
  • 10. In EPS/EBIT analysis, EBIT is plotted on the:
A) Y-axis
B) X-axis
C) Z-axis
D) Horizontal bar
  • 11. In EPS/EBIT analysis, EPS is plotted on the:
A) Horizontal bar
B) Y-axis
C) X-axis
D) Z-axis
  • 12. The best financing option is the one that:
A) Avoids taxes
B) Has the lowest debt
C) Uses only equity
D) Has the highest EPS for a given EBIT level
  • 13. A limitation of EPS/EBIT analysis is that it does not consider:
A) Tax rates
B) Control and flexibility
C) Interest expense
D) Net income
  • 14. Projected financial statements usually cover how many years?
A) 3 years
B) 2 years
C) 5 years
D) 4 years
  • 15. Which financial statement is projected first?
A) Statement of Retained Earnings
B) Balance Sheet
C) Income Statement
D) Cash Flow Statement
  • 16. The percentage-of-sales method is mainly used to project:
A) Dividends only
B) COGS and operating expenses
C) Assets only
D) Taxes only
  • 17. Retained earnings are calculated as:
A) Sales − expenses
B) EBIT − taxes
C) Net income − dividends
D) Net income + dividends
  • 18. In projected balance sheets, cash is often used as a:
A) Dividend
B) Fixed value
C) Plug figure
D) Liability
  • 19. Why are notes added to projected financial statements?
A) To increase length
B) To explain assumptions and major changes
C) To calculate EPS
D) To hide losses
  • 20. Corporate valuation is needed for all EXCEPT:
A) Acquisitions
B) Divestitures
C) Mergers
D) Daily operations
  • 21. Which valuation method uses stockholders’ equity minus goodwill and intangibles?
A) Net Worth Method
B) P/E Ratio Method
C) Outstanding Shares Method
D) Net Income Method
  • 22. The Net Income Method values a firm as
A) Net income × stock price
B) Net income ÷ EPS
C) Net income × 10
D) Net income × 5
  • 23. Market capitalization is calculated using:
A) EPS × P/E ratio
B) Assets − liabilities
C) Net income × 5
D) Number of shares × stock price
  • 24. Financial ratio analysis is important because it:
A) Predicts stock prices
B) Replaces financial statements
C) Eliminates risk
D) Tracks performance and identifies strengths and weaknesses
  • 25. An Initial Public Offering (IPO) occurs when a company:
A) Declares dividends
B) Issues bonds
C) Buys another firm
D) Sells stock to the public for the first time
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