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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) They reduce competition
C) Strategies can be implemented without them
D) Strategies succeed only if finances are managed well
  • 2. Finance and accounting activities are considered ______ to strategy implementation.
A) Central
B) Optional
C) Secondary
D) Irrelevant
  • 3. Financial knowledge gives strategists a:
A) Political advantage
B) Cultural advantage
C) Legal advantage
D) Competitive advantage
  • 4. Capital structure refers to the:
A) Mix of debt and equity
B) Market value of stock
C) Amount of cash on hand
D) Level of profits
  • 5. EPS/EBIT analysis is used to:
A) Evaluate competitors
B) Decide the best capital structure
C) Measure employee productivity
D) Forecast sales
  • 6. EPS stands for:
A) Earnings Per Stock
B) Estimated Profit Share
C) Equity Per Share
D) Earnings Per Share
  • 7. EBIT means:
A) Earnings Before Income Taxes
B) Equity Before Interest and Taxes
C) Earnings Before Interest and Taxes
D) Earnings After 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) Calculate taxes
B) Graph EPS and EBIT
C) Gather input data
D) Compute EPS
  • 10. In EPS/EBIT analysis, EBIT is plotted on the:
A) Z-axis
B) Horizontal bar
C) Y-axis
D) X-axis
  • 11. In EPS/EBIT analysis, EPS is plotted on the:
A) Z-axis
B) X-axis
C) Y-axis
D) Horizontal bar
  • 12. The best financing option is the one that:
A) Has the lowest debt
B) Avoids taxes
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) Interest expense
B) Control and flexibility
C) Net income
D) Tax rates
  • 14. Projected financial statements usually cover how many years?
A) 4 years
B) 2 years
C) 5 years
D) 3 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) Assets only
B) COGS and operating expenses
C) Dividends only
D) Taxes only
  • 17. Retained earnings are calculated as:
A) EBIT − taxes
B) Net income − dividends
C) Net income + dividends
D) Sales − expenses
  • 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 explain assumptions and major changes
B) To increase length
C) To calculate EPS
D) To hide losses
  • 20. Corporate valuation is needed for all EXCEPT:
A) Mergers
B) Divestitures
C) Daily operations
D) Acquisitions
  • 21. Which valuation method uses stockholders’ equity minus goodwill and intangibles?
A) Outstanding Shares Method
B) Net Worth Method
C) P/E Ratio 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 × 5
D) Net income × 10
  • 23. Market capitalization is calculated using:
A) Assets − liabilities
B) Net income × 5
C) Number of shares × stock price
D) EPS × P/E ratio
  • 24. Financial ratio analysis is important because it:
A) Tracks performance and identifies strengths and weaknesses
B) Predicts stock prices
C) Eliminates risk
D) Replaces financial statements
  • 25. An Initial Public Offering (IPO) occurs when a company:
A) Issues bonds
B) Sells stock to the public for the first time
C) Buys another firm
D) Declares dividends
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