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