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