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) Amount of cash on hand
C) Level of profits
D) Market value of stock
  • 5. EPS/EBIT analysis is used to:
A) Forecast sales
B) Decide the best capital structure
C) Measure employee productivity
D) Evaluate competitors
  • 6. EPS stands for:
A) Estimated Profit Share
B) Earnings Per Share
C) Equity Per Share
D) Earnings Per Stock
  • 7. EBIT means:
A) Earnings After Taxes
B) Earnings Before Income Taxes
C) Equity Before Interest and Taxes
D) Earnings Before Interest and Taxes
  • 8. EAT refers to:
A) Earnings After Taxes
B) Earnings At Time
C) Earnings And Taxes
D) Equity After Taxes
  • 9. Which is the first step in EPS/EBIT analysis?
A) Gather input data
B) Calculate taxes
C) Compute EPS
D) Graph EPS and EBIT
  • 10. In EPS/EBIT analysis, EBIT is plotted on the:
A) Horizontal bar
B) Z-axis
C) X-axis
D) Y-axis
  • 11. In EPS/EBIT analysis, EPS is plotted on the:
A) Z-axis
B) Horizontal bar
C) X-axis
D) Y-axis
  • 12. The best financing option is the one that:
A) Avoids taxes
B) Has the lowest debt
C) Has the highest EPS for a given EBIT level
D) Uses only equity
  • 13. A limitation of EPS/EBIT analysis is that it does not consider:
A) Net income
B) Interest expense
C) Control and flexibility
D) Tax rates
  • 14. Projected financial statements usually cover how many years?
A) 5 years
B) 4 years
C) 3 years
D) 2 years
  • 15. Which financial statement is projected first?
A) Statement of Retained Earnings
B) Income Statement
C) Balance Sheet
D) Cash Flow Statement
  • 16. The percentage-of-sales method is mainly used to project:
A) Assets only
B) Taxes only
C) Dividends only
D) COGS and operating expenses
  • 17. Retained earnings are calculated as:
A) Sales − expenses
B) Net income + dividends
C) EBIT − taxes
D) Net income − dividends
  • 18. In projected balance sheets, cash is often used as a:
A) Liability
B) Fixed value
C) Plug figure
D) Dividend
  • 19. Why are notes added to projected financial statements?
A) To explain assumptions and major changes
B) To calculate EPS
C) To hide losses
D) To increase length
  • 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) Outstanding Shares Method
C) Net Income Method
D) P/E Ratio Method
  • 22. The Net Income Method values a firm as
A) Net income ÷ EPS
B) Net income × 5
C) Net income × 10
D) Net income × stock price
  • 23. Market capitalization is calculated using:
A) EPS × P/E ratio
B) Net income × 5
C) Number of shares × stock price
D) Assets − liabilities
  • 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) Buys another firm
B) Issues bonds
C) Declares dividends
D) Sells stock to the public for the first time
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