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CHAPTER 8
Contributed by: Laong
  • 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) Secondary
B) Central
C) Irrelevant
D) Optional
  • 3. Financial knowledge gives strategists a:
A) Legal advantage
B) Competitive advantage
C) Cultural advantage
D) Political advantage
  • 4. Capital structure refers to the:
A) Level of profits
B) Mix of debt and equity
C) Amount of cash on hand
D) Market value of stock
  • 5. EPS/EBIT analysis is used to:
A) Evaluate competitors
B) Measure employee productivity
C) Decide the best capital structure
D) Forecast sales
  • 6. EPS stands for:
A) Equity Per Share
B) Earnings Per Stock
C) Earnings Per Share
D) Estimated Profit Share
  • 7. EBIT means:
A) Earnings After Taxes
B) Equity Before Interest and Taxes
C) Earnings Before Income Taxes
D) Earnings Before Interest and Taxes
  • 8. EAT refers to:
A) Earnings And Taxes
B) Equity After Taxes
C) Earnings At Time
D) Earnings After Taxes
  • 9. Which is the first step in EPS/EBIT analysis?
A) Gather input data
B) Graph EPS and EBIT
C) Compute EPS
D) Calculate taxes
  • 10. In EPS/EBIT analysis, EBIT is plotted on the:
A) Y-axis
B) Horizontal bar
C) X-axis
D) Z-axis
  • 11. In EPS/EBIT analysis, EPS is plotted on the:
A) Y-axis
B) Z-axis
C) Horizontal bar
D) X-axis
  • 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) Control and flexibility
B) Net income
C) Tax rates
D) Interest expense
  • 14. Projected financial statements usually cover how many years?
A) 2 years
B) 3 years
C) 5 years
D) 4 years
  • 15. Which financial statement is projected first?
A) Statement of Retained Earnings
B) Cash Flow Statement
C) Balance Sheet
D) Income Statement
  • 16. The percentage-of-sales method is mainly used to project:
A) COGS and operating expenses
B) Dividends only
C) Taxes only
D) Assets only
  • 17. Retained earnings are calculated as:
A) Net income − dividends
B) EBIT − taxes
C) Sales − expenses
D) Net income + dividends
  • 18. In projected balance sheets, cash is often used as a:
A) Liability
B) Dividend
C) Plug figure
D) Fixed value
  • 19. Why are notes added to projected financial statements?
A) To hide losses
B) To explain assumptions and major changes
C) To calculate EPS
D) To increase length
  • 20. Corporate valuation is needed for all EXCEPT:
A) Mergers
B) Daily operations
C) Divestitures
D) Acquisitions
  • 21. Which valuation method uses stockholders’ equity minus goodwill and intangibles?
A) Net Income Method
B) P/E Ratio Method
C) Net Worth Method
D) Outstanding Shares 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) Net income × 5
B) Number of shares × stock price
C) Assets − liabilities
D) EPS × P/E ratio
  • 24. Financial ratio analysis is important because it:
A) Replaces financial statements
B) Tracks performance and identifies strengths and weaknesses
C) Eliminates risk
D) Predicts stock prices
  • 25. An Initial Public Offering (IPO) occurs when a company:
A) Buys another firm
B) Sells stock to the public for the first time
C) Declares dividends
D) Issues bonds
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