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