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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) They are only needed for reporting
D) Strategies succeed only if finances are managed well
  • 2. Finance and accounting activities are considered ______ to strategy implementation.
A) Secondary
B) Optional
C) Central
D) Irrelevant
  • 3. Financial knowledge gives strategists a:
A) Legal advantage
B) Competitive advantage
C) Political advantage
D) Cultural advantage
  • 4. Capital structure refers to the:
A) Mix of debt and equity
B) Market value of stock
C) Level of profits
D) Amount of cash on hand
  • 5. EPS/EBIT analysis is used to:
A) Decide the best capital structure
B) Evaluate competitors
C) Forecast sales
D) Measure employee productivity
  • 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) Earnings Before Income Taxes
C) Earnings Before Interest and Taxes
D) Equity Before Interest and Taxes
  • 8. EAT refers to:
A) Earnings And Taxes
B) Earnings After Taxes
C) Equity After Taxes
D) Earnings At Time
  • 9. Which is the first step in EPS/EBIT analysis?
A) Graph EPS and EBIT
B) Gather input data
C) Calculate taxes
D) Compute EPS
  • 10. In EPS/EBIT analysis, EBIT is plotted on the:
A) Horizontal bar
B) Y-axis
C) X-axis
D) Z-axis
  • 11. In EPS/EBIT analysis, EPS is plotted on the:
A) X-axis
B) Y-axis
C) Z-axis
D) Horizontal bar
  • 12. The best financing option is the one that:
A) Avoids taxes
B) Has the highest EPS for a given EBIT level
C) Uses only equity
D) Has the lowest debt
  • 13. A limitation of EPS/EBIT analysis is that it does not consider:
A) Control and flexibility
B) Interest expense
C) Net income
D) Tax rates
  • 14. Projected financial statements usually cover how many years?
A) 5 years
B) 2 years
C) 4 years
D) 3 years
  • 15. Which financial statement is projected first?
A) Cash Flow Statement
B) Statement of Retained Earnings
C) Income Statement
D) Balance Sheet
  • 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) Sales − expenses
B) Net income − dividends
C) EBIT − taxes
D) Net income + dividends
  • 18. In projected balance sheets, cash is often used as a:
A) Fixed value
B) Plug figure
C) Dividend
D) Liability
  • 19. Why are notes added to projected financial statements?
A) To calculate EPS
B) To explain assumptions and major changes
C) To increase length
D) To hide losses
  • 20. Corporate valuation is needed for all EXCEPT:
A) Acquisitions
B) Divestitures
C) Mergers
D) Daily operations
  • 21. Which valuation method uses stockholders’ equity minus goodwill and intangibles?
A) Net Income Method
B) Net Worth Method
C) P/E Ratio Method
D) Outstanding Shares Method
  • 22. The Net Income Method values a firm as
A) Net income × 5
B) Net income × 10
C) Net income ÷ EPS
D) Net income × stock price
  • 23. Market capitalization is calculated using:
A) Number of shares × stock price
B) EPS × P/E ratio
C) Assets − liabilities
D) Net income × 5
  • 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) Issues bonds
B) Declares dividends
C) Sells stock to the public for the first time
D) Buys another firm
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