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Strategic Management of Technological Innovation 5th Edition by MELISSA A SCHILLING – Test Bank
Chapter 06
Defining the Organization’s Strategic Direction
True / False Questions
| 1. | Formulating a technological innovation strategy first requires an accurate appraisal of where the firm currently is.
True    False |
| 2. | In general, the more firms competing that are of comparable size, the more competitive the industry will be.
True    False |
| 3. | When demand is increasing, there is less revenue to go around and firms will experience more competitive pressure.
True    False |
| 4. | Low exit barriers intensify rivalry by making firms reluctant to abandon the industry.
True    False |
| 5. | According to Porter’s five-force model, the threat of potential entrants is influenced by the height of entry barriers.
True    False |
| 6. | According to Porter’s five-force model, the degree to which a firm relies on one or a few suppliers will influence its ability to negotiate good terms.
True    False |
| 7. | Weekly News Inc. bought the paper mill that supplied paper for printing its magazine. This is an example of horizontal integration.
True    False |
| 8. | Ammunition can be considered a complement for firearms.
True    False |
| 9. | A strategic stakeholder analysis emphasizes the stakeholder management issues a firm ought to attend to due to their ethical or moral implications.
True    False |
| 10. | According to Porter’s value chain model, firm infrastructure is a primary activity.
True    False |
| 11. | Resources of a tangible nature that can be readily codified are called tacit resources.
True    False |
| 12. | Path dependency refers to the abilities that make a firm more agile and responsive to change.
True    False |
| 13. | A firm’s emphasis on a scientific discipline that is central to its core competency can make the firm less attractive to individuals from other disciplines.
True    False |
| 14. | According to Prahalad and Hamel’s model, it is possible for a firm to develop core competencies to a set of abilities that enable it to quickly reconfigure its organizational structure and routines in response to new opportunities.
True    False |
| 15. | Dynamic capabilities enable firms to quickly adapt to emerging markets or major technological discontinuities.
True    False |
Multiple Choice Questions
| 16. | Which of the following statements is true of Porter’s five-force model?
|
| 17. | Mr. Crunchy Inc. is a firm experiencing severe losses. However, with large initial investment in manufacturing equipment and infrastructure, the firm is finding it difficult to abandon the industry. According to Porter’s five-force model, the company is facing a(n):
|
| 18. | According to Porter’s five-force model, if suppliers of a particular good are very abundant, _____.
|
| 19. | Ceramic Customs Corp. required a specific type of ceramic to make its tiles. Since there was only one supplier for that particular ceramic, the firm was forced to source all of its supplies from it. The firm tried negotiating the price of the material but failed to get any reduction on the cost. This was because:
|
| 20. | According to Porter’s five-force model, if a buyer can threaten to backward vertically integrate, it will:
|
| 21. | Factors that make it difficult or expensive to change suppliers or buyers are referred to as _____.
|
| 22. | Perfecto Espresso Corp. is a chain of coffee shops in the United States. Earlier it used to source its coffee from several coffee suppliers. However, recently it started its own coffee plantation to supply its coffee shops. This is an example of:
|
| 23. | Allure Fabrics Corp. supplies cotton, linen, and silk fabrics to various designer wear boutiques in and around Florida. The firm has recently launched a boutique in Florida under its own brand name to sell women’s fashion apparel. Allure Fabrics is practicing:
|
| 24. | Scripts & Scrolls Corp. supplies printing paper to select publishing houses. When its customers asked for a discount in the cost of supplies, the company had to oblige fearing that the customers might withdraw pending contracts. This shows the increased:
|
| 25. | Ample Espresso Corp. is a coffeehouse located across from Tian’s Kitchen, a restaurant. According to Porter’s five-force model, the services and products provided by both are most accurately classified as:
|
| 26. | Sam’s Sugar Corp., a leading cane sugar manufacturer, faces a threat of going out of business when a rival company introduces a zero-calorie sweetener to replace the high-calorie cane sugar. According to Porter’s five-force model, the two products are:
|
| 27. | The Corner Shop Corp. is a leading supermarket chain in Chicago. According to Michael Porter’s model of a value chain, which of the following activities of the firm is a primary activity?
|
| 28. | According to Michael Porter’s model of a value chain, which of the following is a support activity?
|
| 29. | Which of the following would be an example of a tacit resource?
|
| 30. | A resource can be extremely difficult to imitate if:
|
| 31. | Socially complex resources are:
|
| 32. | The relationship between a _____ resource and the outcome it produces is poorly understood.
|
| 33. | Which of the following statements is true of core competencies?
|
| 34. | Piezo Tech Solutions supplies hospitals with software to track insurance claims. As insurance regulations and policies are always changing, its software needs to have the ability to be agile and responsive to change. In other words, the software needs:
|
| 35. | When Faslow Medical Center in Exeter County changed its name to Faslow Hospital, it also unveiled a plan to build a medical tower that would double its physical facilities by 100 percent within the next 10 years. It also announced that its goal was to not only serve Exeter County but also the entire region including the five contiguous counties. This is most accurately an expression of:
|
Essay Questions
| 36. | Explain the influences on the threat of potential entrants into a market according to Porter’s five-force model.
|
| 37. | What properties must resources have to be a potential source of sustainable competitive advantage?
|
| 38. | What are core competencies?
|
| 39. | Explain the advantages and disadvantages of rewarding and promoting the development of core competencies.
|
| 40. | What is the danger of not having a strategic intent? In your answer, assume your company operates a hospital in a city with a population of 30,000 people, located about 50 miles away from a large city.
|
Chapter 06 Defining the Organization’s Strategic Direction Answer Key
True / False Questions
| 1. (p. 111) |
Formulating a technological innovation strategy first requires an accurate appraisal of where the firm currently is.
TRUE |
| Difficulty: 1 Easy  |
| 2. (p. 112) |
In general, the more firms competing that are of comparable size, the more competitive the industry will be.
TRUE |
| Difficulty: 1 Easy  |
| 3. (p. 113) |
When demand is increasing, there is less revenue to go around and firms will experience more competitive pressure.
FALSE |
| Difficulty: 1 Easy  |
| 4. (p. 113) |
Low exit barriers intensify rivalry by making firms reluctant to abandon the industry.
FALSE |
| Difficulty: 1 Easy  |
| 5. (p. 113) |
According to Porter’s five-force model, the threat of potential entrants is influenced by the height of entry barriers.
TRUE |
| Difficulty: 1 Easy  |
| 6. (p. 113) |
According to Porter’s five-force model, the degree to which a firm relies on one or a few suppliers will influence its ability to negotiate good terms.
TRUE |
| Difficulty: 1 Easy  |
| 7. (p. 114) |
Weekly News Inc. bought the paper mill that supplied paper for printing its magazine. This is an example of horizontal integration.
FALSE |
| Difficulty: 2 Medium  |
| 8. (p. 114) |
Ammunition can be considered a complement for firearms.
TRUE |
| Difficulty: 2 Medium  |
| 9. (p. 115) |
A strategic stakeholder analysis emphasizes the stakeholder management issues a firm ought to attend to due to their ethical or moral implications.
FALSE |
| Difficulty: 1 Easy  |
| 10. (p. 116) |
According to Porter’s value chain model, firm infrastructure is a primary activity.
FALSE |
| Difficulty: 2 Medium  |
| 11. (p. 118) |
Resources of a tangible nature that can be readily codified are called tacit resources.
FALSE |
| Difficulty: 1 Easy  |
| 12. (p. 121) |
Path dependency refers to the abilities that make a firm more agile and responsive to change.
FALSE |
| Difficulty: 1 Easy  |
| 13. (p. 121) |
A firm’s emphasis on a scientific discipline that is central to its core competency can make the firm less attractive to individuals from other disciplines.
TRUE |
| Difficulty: 1 Easy  |
| 14. (p. 121) |
According to Prahalad and Hamel’s model, it is possible for a firm to develop core competencies to a set of abilities that enable it to quickly reconfigure its organizational structure and routines in response to new opportunities.
TRUE |
| Difficulty: 1 Easy  |
| 15. (p. 121) |
Dynamic capabilities enable firms to quickly adapt to emerging markets or major technological discontinuities.
TRUE |
| Difficulty: 1 Easy  |
Multiple Choice Questions
| 16. (p. 111) |
Which of the following statements is true of Porter’s five-force model?
|
| Difficulty: 2 Medium  |
| 17. (p. 113) |
Mr. Crunchy Inc. is a firm experiencing severe losses. However, with large initial investment in manufacturing equipment and infrastructure, the firm is finding it difficult to abandon the industry. According to Porter’s five-force model, the company is facing a(n):
|
| Difficulty: 3 Hard  |
| 18. (p. 113) |
According to Porter’s five-force model, if suppliers of a particular good are very abundant, _____.
|
| Difficulty: 2 Medium  |
| 19. (p. 113) |
Ceramic Customs Corp. required a specific type of ceramic to make its tiles. Since there was only one supplier for that particular ceramic, the firm was forced to source all of its supplies from it. The firm tried negotiating the price of the material but failed to get any reduction on the cost. This was because:
|
| Difficulty: 3 Hard  |
| 20. (p. 113-114) |
According to Porter’s five-force model, if a buyer can threaten to backward vertically integrate, it will:
|
| Difficulty: 2 Medium  |
| 21. (p. 114) |
Factors that make it difficult or expensive to change suppliers or buyers are referred to as _____.
|
| Difficulty: 1 Easy  |
| 22. (p. 114) |
Perfecto Espresso Corp. is a chain of coffee shops in the United States. Earlier it used to source its coffee from several coffee suppliers. However, recently it started its own coffee plantation to supply its coffee shops. This is an example of:
|
| Difficulty: 3 Hard  |
| 23. (p. 114) |
Allure Fabrics Corp. supplies cotton, linen, and silk fabrics to various designer wear boutiques in and around Florida. The firm has recently launched a boutique in Florida under its own brand name to sell women’s fashion apparel. Allure Fabrics is practicing:
|
| Difficulty: 3 Hard  |
| 24. (p. 114) |
Scripts & Scrolls Corp. supplies printing paper to select publishing houses. When its customers asked for a discount in the cost of supplies, the company had to oblige fearing that the customers might withdraw pending contracts. This shows the increased:
|
| Difficulty: 3 Hard  |
| 25. (p. 114) |
Ample Espresso Corp. is a coffeehouse located across from Tian’s Kitchen, a restaurant. According to Porter’s five-force model, the services and products provided by both are most accurately classified as:
|
| Difficulty: 2 Medium  |
| 26. (p. 114) |
Sam’s Sugar Corp., a leading cane sugar manufacturer, faces a threat of going out of business when a rival company introduces a zero-calorie sweetener to replace the high-calorie cane sugar. According to Porter’s five-force model, the two products are:
|
| Difficulty: 2 Medium  |
| 27. (p. 116) |
The Corner Shop Corp. is a leading supermarket chain in Chicago. According to Michael Porter’s model of a value chain, which of the following activities of the firm is a primary activity?
|
| Difficulty: 2 Medium  |
| 28. (p. 116) |
According to Michael Porter’s model of a value chain, which of the following is a support activity?
|
| Difficulty: 1 Easy  |
| 29. (p. 118) |
Which of the following would be an example of a tacit resource?
|
| Difficulty: 3 Hard  |
| 30. (p. 118) |
A resource can be extremely difficult to imitate if:
|
| Difficulty: 2 Medium  |
| 31. (p. 118) |
Socially complex resources are:
|
| Difficulty: 2 Medium  |
| 32. (p. 118) |
The relationship between a _____ resource and the outcome it produces is poorly understood.
|
| Difficulty: 1 Easy  |
| 33. (p. 119) |
Which of the following statements is true of core competencies?
|
| Difficulty: 2 Medium  |
| 34. (p. 121) |
Piezo Tech Solutions supplies hospitals with software to track insurance claims. As insurance regulations and policies are always changing, its software needs to have the ability to be agile and responsive to change. In other words, the software needs:
|
| Difficulty: 2 Medium  |
| 35. (p. 121) |
When Faslow Medical Center in Exeter County changed its name to Faslow Hospital, it also unveiled a plan to build a medical tower that would double its physical facilities by 100 percent within the next 10 years. It also announced that its goal was to not only serve Exeter County but also the entire region including the five contiguous counties. This is most accurately an expression of:
|
| Difficulty: 2 Medium  |
Essay Questions
| 36. (p. 113) |
Explain the influences on the threat of potential entrants into a market according to Porter’s five-force model.
According to Porter’s five-force model, the threat of potential entrants is influenced by both the degree to which the industry is likely to attract new entrants (i.e., is it profitable, growing, or otherwise alluring?) and the height of entry barriers. Entry barriers can include such factors as large start-up costs, brand loyalty, difficulty in gaining access to suppliers or distributors, government regulation, threat of retaliation by existing competitors, and many others. While profitability and growth may attract new entrants, entry barriers will deter them. |
| Difficulty: 2 Medium  |
| 37. (p. 118) |
What properties must resources have to be a potential source of sustainable competitive advantage?
To be a potential source of sustainable competitive advantage, resources must be rare, valuable, durable, and inimitable. Resources that are rare and valuable may yield a competitive advantage, but that advantage will not be sustainable if the firm is incapable of keeping the resources, or if other firms are capable of imitating them. If a firm lacks the capital to reinvest in its brand image, it will erode. Furthermore, many valuable resources are quickly imitated by other firms. Technological advances are reverse-engineered, skillful marketing campaigns are copied, innovative human resource practices are adopted by imitators, and so on. Some resources, however, are not readily imitable. |
| Difficulty: 2 Medium  |
| 38. (p. 119) |
What are core competencies?
A company’s core competencies are typically considered to be those that differentiate it strategically. A core competency is more than just a core technology. A core competency arises from a firm’s ability to combine and harmonize multiple primary abilities in which the firm excels into a few key building blocks of specialized expertise. |
| Difficulty: 2 Medium  |
| 39. (p. 120-121) |
Explain the advantages and disadvantages of rewarding and promoting the development of core competencies.
By rewarding and promoting the development of your core competencies you can really excel at it and continue to be successful in your industry. After all, the core competence gives you an advantage over your competition, and you should leverage that as far as possible. By viewing the business as a portfolio of core competencies, managers are better able to focus on value creation and meaningful new business development, rather than cost cutting or opportunistic expansion. |
| Difficulty: 3 Hard  |
| 40. (p. 121-123) |
What is the danger of not having a strategic intent? In your answer, assume your company operates a hospital in a city with a population of 30,000 people, located about 50 miles away from a large city.
Without a strategic intent, the hospital will fail to recognize future market needs and will only try to maintain its current market position. The hospital can easily become focused on markets it has served in the past due to a lack of forward-looking orientation. Most likely, hospitals from the larger city will try to become more regional in nature by opening satellite centers in the county where the local hospital is located. They will also adopt the latest medical technology. Local physicians may start sending patients to the other, larger hospitals as the hospital will not be able to provide the best medical treatment to its patients. Employees will complain about having out-of-date technology and of losing patients to larger hospitals. This lower morale will adversely affect turnover. The local community will probably also become disgruntled. Students’ answers may vary. |
| Difficulty: 3 Hard  |
Chapter 07
Choosing Innovation Projects
True / False Questions
| 1. | The allocation of a finite quantity of resources over different possible uses is known as research rationing.
True    False |
| 2. | The ratio of R&D expenditures to sales is known as R&D trajectory.
True    False |
| 3. | According to the net present value method of discounted cash flow analysis, the time required to break even on a project using discounted cash flows is known as period of return.
True    False |
| 4. | Both net present value and internal rate of return techniques provide concrete financial estimates that facilitate strategic planning and trade-off decisions.
True    False |
| 5. | Standard discounted cash flow analysis has the potential to severely undervalue a development project’s contribution to a firm.
True    False |
| 6. | Calculating the internal rate of return of a project typically must be done by trial and error.
True    False |
| 7. | From a real options perspective, the value of a call stock option is zero as long as the price of the stock is more than the exercise price.
True    False |
| 8. | From a real options perspective, the exercise price associated with commercializing a new technology would include the cost of manufacturing, marketing, and distributing the technology.
True    False |
| 9. | While the value of a stock is independent of the call holder’s behavior, the value of a R&D investment is not independent of the investor’s behavior.
True    False |
| 10. | The investor is an active driver of the value of an investment.
True    False |
| 11. | Breakthrough projects involve development of products that incorporate revolutionary new product and process technologies.
True    False |
| 12. | Derivative projects offer fundamental improvements in the cost, quality, and performance of a technology over preceding generations.
True    False |
| 13. | The most common use of conjoint analysis is to assess the relative importance of different product attributes to customers.
True    False |
| 14. | Data envelopment analysis (DEA) utilizes linear programming.
True    False |
| 15. | The drawback to data envelopment analysis (DEA) is that it does not allow comparisons of projects using multiple kinds of measures.
True    False |
Multiple Choice Questions
| 16. | _____ refers to the allocation of a finite quantity of resources over different possible uses.
|
| 17. | Which of the following is true of quantitative methods of analyzing new projects, particularly in rapidly changing environments?
|
| 18. | The discounted cash inflows of a project minus the discounted cash outflows is referred to as the _____.
|
| 19. | What is the net present value (NPV) of a project if the present value of cash inflow is $10,000 and the present value of cash outflows is $5,000?
|
| 20. | If the net present value of a project is greater than zero, then the:
|
| 21. | Which of the following is true of the internal rate of return of a project?
|
| 22. | Which of the following is a disadvantage of using internal rate of return for assessing a project?
|
| 23. | With respect to a research and development (R&D) program, which of the following can be considered the exercise price?
|
| 24. | If a firm has the option of investing in R&D, the cost of commercializing a new technology that is developed can be considered the:
|
| 25. | Which of the following is an advantage of using the real options approach of evaluating a project?
|
| 26. | In the context of qualitative methods for choosing projects, screening questions are used mainly to:
|
| 27. | NewDigger Inc. makes backhoes for digging ditches and trenches. It has developed an acid that, when poured on the ground, reduces the time and labor required to dig trenches of various depths, depending on how much is applied. The firm has recently started using this product commercially. This would most probably be considered a(n) _____ project for NewDigger.
|
| 28. | TechToTeach Co. has developed and sold a product that can be used by students to take faster notes in a classroom as the teacher speaks. The device automatically records the teacher’s voice and converts it into a text format. This new technology has been widely accepted by various universities and has been appreciated by students, thus increasing the company’s inflow. This technology can be most accurately described as a(n) _____ project by TechToTeach.
|
| 29. | Coolers Inc. has developed a new generation of air conditioners. It has upgraded the old technology by making the air conditioners work on voice sensors instead of remote control. Though the technology is new, Coolers has decided to introduce the product in the market at a low cost. This project is a(n) _____ project for Coolers Inc.
|
| 30. | A firm that invests heavily in derivative projects that may be immediately commercialized with little risk:
|
| 31. | In the _____ method, in order to establish scales of customer preferences, individuals in a group are each given a stack of cards with an object or idea on each card.
|
| 32. | In a survey, Sam was asked to rank, on a scale of 1 to 5, how important different cell phone features were to him. The result was then used by the surveying firm to assess the different attributes of the ranking. This survey would most accurately be termed a _____ analysis.
|
| 33. | Fabmark Consultancy was asked by a client to evaluate the attractiveness of a potential project to develop a new product line. The data provided by the client included cash flow estimates (in dollars), ranking of marketability by the sales force, and ranking of different product attributes from a potential customer focus group. Which of the following methods would allow Fabmark Consultancy to combine this information and analyze it?
|
| 34. | Which of the following statements is true of conjoint analysis?
|
| 35. | An efficiency frontier is the range of _____ that optimize a combination of features of a potential project.
|
Essay Questions
| 36. | Why do technology start-ups face a much higher cost of capital than larger competitors? Discuss the sources from which new technology start-ups can obtain external financing.
|
| 37. | What is the internal rate of return of a project? How is it calculated? What are the drawbacks of using this method?
|
| 38. | Explain how the real options method uses stock options. Are there any drawbacks to this method?
|
| 39. | Dayton Regional Medical Center has decided to build a new wing for its outpatient services. Dayton wants to know which services are important to its patients in this new wing. Do they prefer large waiting rooms for family members or small rooms adjacent to recovery rooms? Do they prefer patient advocates to keep them informed, or would nurses be better? What technique would be appropriate to come up with the weights and trade-offs for these types of services? Explain why you consider the technique to be most appropriate.
|
| 40. | General Sys Inc. has gathered data to evaluate the attractiveness of a potential project. It knows the cash flows expected under different scenarios. It has conducted a focus group that ranks various product attributes, and it has the ranking of various marketing techniques provided by a consulting company. What method should General Sys use to evaluate this project? Why is this method the best one to use?
|
Chapter 07 Choosing Innovation Projects Answer Key
True / False Questions
| 1. (p. 131) |
The allocation of a finite quantity of resources over different possible uses is known as research rationing.
FALSE |
| Difficulty: 1 Easy  |
| 2. (p. 131) |
The ratio of R&D expenditures to sales is known as R&D trajectory.
FALSE |
| Difficulty: 1 Easy  |
| 3. (p. 136) |
According to the net present value method of discounted cash flow analysis, the time required to break even on a project using discounted cash flows is known as period of return.
FALSE |
| Difficulty: 1 Easy  |
| 4. (p. 137) |
Both net present value and internal rate of return techniques provide concrete financial estimates that facilitate strategic planning and trade-off decisions.
FALSE |
| Difficulty: 1 Easy  |
| 5. (p. 137) |
Standard discounted cash flow analysis has the potential to severely undervalue a development project’s contribution to a firm.
TRUE |
| Difficulty: 1 Easy  |
| 6. (p. 137) |
Calculating the internal rate of return of a project typically must be done by trial and error.
TRUE |
| Difficulty: 1 Easy  |
| 7. (p. 138) |
From a real options perspective, the value of a call stock option is zero as long as the price of the stock is more than the exercise price.
FALSE |
| Difficulty: 1 Easy  |
| 8. (p. 138) |
From a real options perspective, the exercise price associated with commercializing a new technology would include the cost of manufacturing, marketing, and distributing the technology.
TRUE |
| Difficulty: 1 Easy  |
| 9. (p. 140) |
While the value of a stock is independent of the call holder’s behavior, the value of a R&D investment is not independent of the investor’s behavior.
TRUE |
| Difficulty: 1 Easy  |
| 10. (p. 140) |
The investor is an active driver of the value of an investment.
TRUE |
| Difficulty: 1 Easy  |
| 11. (p. 143) |
Breakthrough projects involve development of products that incorporate revolutionary new product and process technologies.
TRUE |
| Difficulty: 1 Easy  |
| 12. (p. 143-144) |
Derivative projects offer fundamental improvements in the cost, quality, and performance of a technology over preceding generations.
FALSE |
| Difficulty: 1 Easy  |
| 13. (p. 145) |
The most common use of conjoint analysis is to assess the relative importance of different product attributes to customers.
TRUE |
| Difficulty: 1 Easy  |
| 14. (p. 148) |
Data envelopment analysis (DEA) utilizes linear programming.
TRUE |
| Difficulty: 1 Easy  |
| 15. (p. 148) |
The drawback to data envelopment analysis (DEA) is that it does not allow comparisons of projects using multiple kinds of measures.
FALSE |
| Difficulty: 1 Easy  |
Multiple Choice Questions
| 16. (p. 131) |
_____ refers to the allocation of a finite quantity of resources over different possible uses.
|
| Difficulty: 1 Easy  |
| 17. (p. 133) |
Which of the following is true of quantitative methods of analyzing new projects, particularly in rapidly changing environments?
|
| Difficulty: 2 Medium  |
| 18. (p. 133) |
The discounted cash inflows of a project minus the discounted cash outflows is referred to as the _____.
|
| Difficulty: 1 Easy  |
| 19. (p. 135) |
What is the net present value (NPV) of a project if the present value of cash inflow is $10,000 and the present value of cash outflows is $5,000?
|
| Difficulty: 2 Medium  |
| 20. (p. 137) |
If the net present value of a project is greater than zero, then the:
|
| Difficulty: 2 Medium  |
| 21. (p. 137) |
Which of the following is true of the internal rate of return of a project?
|
| Difficulty: 2 Medium  |
| 22. (p. 137) |
Which of the following is a disadvantage of using internal rate of return for assessing a project?
|
| Difficulty: 2 Medium  |
| 23. (p. 138) |
With respect to a research and development (R&D) program, which of the following can be considered the exercise price?
|
| Difficulty: 1 Easy  |
| 24. (p. 138) |
If a firm has the option of investing in R&D, the cost of commercializing a new technology that is developed can be considered the:
|
| Difficulty: 2 Medium  |
| 25. (p. 138) |
Which of the following is an advantage of using the real options approach of evaluating a project?
|
| Difficulty: 2 Medium  |
| 26. (p. 138) |
In the context of qualitative methods for choosing projects, screening questions are used mainly to:
|
| Difficulty: 2 Medium  |
| 27. (p. 142-143) |
NewDigger Inc. makes backhoes for digging ditches and trenches. It has developed an acid that, when poured on the ground, reduces the time and labor required to dig trenches of various depths, depending on how much is applied. The firm has recently started using this product commercially. This would most probably be considered a(n) _____ project for NewDigger.
|
| Difficulty: 3 Hard  |
| 28. (p. 142-143) |
TechToTeach Co. has developed and sold a product that can be used by students to take faster notes in a classroom as the teacher speaks. The device automatically records the teacher’s voice and converts it into a text format. This new technology has been widely accepted by various universities and has been appreciated by students, thus increasing the company’s inflow. This technology can be most accurately described as a(n) _____ project by TechToTeach.
|
| Difficulty: 3 Hard  |
| 29. (p. 143-144) |
Coolers Inc. has developed a new generation of air conditioners. It has upgraded the old technology by making the air conditioners work on voice sensors instead of remote control. Though the technology is new, Coolers has decided to introduce the product in the market at a low cost. This project is a(n) _____ project for Coolers Inc.
|
| Difficulty: 3 Hard  |
| 30. (p. 144) |
A firm that invests heavily in derivative projects that may be immediately commercialized with little risk:
|
| Difficulty: 2 Medium  |
| 31. (p. 145) |
In the _____ method, in order to establish scales of customer preferences, individuals in a group are each given a stack of cards with an object or idea on each card.
|
| Difficulty: 1 Easy  |
| 32. (p. 145) |
In a survey, Sam was asked to rank, on a scale of 1 to 5, how important different cell phone features were to him. The result was then used by the surveying firm to assess the different attributes of the ranking. This survey would most accurately be termed a _____ analysis.
|
| Difficulty: 2 Medium  |
| 33. (p. 147-148) |
Fabmark Consultancy was asked by a client to evaluate the attractiveness of a potential project to develop a new product line. The data provided by the client included cash flow estimates (in dollars), ranking of marketability by the sales force, and ranking of different product attributes from a potential customer focus group. Which of the following methods would allow Fabmark Consultancy to combine this information and analyze it?
|
| Difficulty: 3 Hard  |
| 34. (p. 145) |
Which of the following statements is true of conjoint analysis?
|
| Difficulty: 2 Medium  |
| 35. (p. 148) |
An efficiency frontier is the range of _____ that optimize a combination of features of a potential project.
|
| Difficulty: 1 Easy  |
Essay Questions
| 36. (p. 134) |
Why do technology start-ups face a much higher cost of capital than larger competitors? Discuss the sources from which new technology start-ups can obtain external financing.
While large firms can fund innovation projects internally, new technology start-ups must often obtain external financing. This can sometimes be daunting. Because technology start-ups often have both an unproven technology and an unproven business concept (and sometimes an unproven management team), they typically face a much higher cost of capital than larger competitors, and their options for obtaining capital can be very limited. |
| Difficulty: 2 Medium  |
| 37. (p. 137) |
What is the internal rate of return of a project? How is it calculated? What are the drawbacks of using this method?
The internal rate of return (IRR) of a project is the discount rate that makes the net present value of the investment zero. Managers can compare this rate of return to their required return to decide if the investment should be made. Calculating the IRR of a project typically must be done by trial and error, substituting progressively higher interest rates into the net present value (NPV) equation until the NPV is driven down to zero. Calculators and computers can perform this trial and error. This measure should be used cautiously, however; if cash flows arrive in varying amounts per period, there can be multiple rates of return, and typical calculators or computer programs will often simply report the first IRR that is found. |
| Difficulty: 2 Medium  |
| 38. (p. 138) |
Explain how the real options method uses stock options. Are there any drawbacks to this method?
To understand real options, it is first useful to consider the financial model upon which they are based—stock options. In “real options,” the assets underlying the value of the option are nonfinancial resources. An investor who makes an initial investment in basic R&D or in breakthrough technologies is, it is argued, buying a real call option to implement that technology later should it prove to be valuable. With respect to research and development: 1. The cost of the R&D program can be considered the price of a call option. One drawback is the fact that technology investment scenarios often do not conform to the same capital market assumptions upon which the approach is based. Furthermore, while the value of a stock is independent of the call holder’s behavior (that is, the call holder can simply wait and observe whether the value of the stock rises or falls), the value of a R&D investment is not independent of the investor’s behavior. |
| Difficulty: 2 Medium  |
| 39. (p. 145) |
Dayton Regional Medical Center has decided to build a new wing for its outpatient services. Dayton wants to know which services are important to its patients in this new wing. Do they prefer large waiting rooms for family members or small rooms adjacent to recovery rooms? Do they prefer patient advocates to keep them informed, or would nurses be better? What technique would be appropriate to come up with the weights and trade-offs for these types of services? Explain why you consider the technique to be most appropriate.
A conjoint analysis technique would be the best choice for this analysis. Conjoint analysis can estimate the specific value of features of the outpatient center. As a part of the analysis, pricing for these services can also be determined. Multiple regression can be used to assess the degree to which each service influences the overall rating, resulting in the assignment of specific weights to individual criteria for different configurations of the outpatient center. Although the Medical Center cannot please everyone, it can come up with the “best” configuration for its patient base. |
| Difficulty: 2 Medium  |
| 40. (p. 147) |
General Sys Inc. has gathered data to evaluate the attractiveness of a potential project. It knows the cash flows expected under different scenarios. It has conducted a focus group that ranks various product attributes, and it has the ranking of various marketing techniques provided by a consulting company. What method should General Sys use to evaluate this project? Why is this method the best one to use?
General Sys should use data envelopment analysis (DEA) to conduct its evaluation. This method allows analysis of multiple criteria that have different kinds of measurement units. In this case, measurement units include dollars (cash flows) and rankings (focus group and consulting company). DEA uses linear programming to combine these different measures to create a hypothetical efficiency frontier that represents the best performance on each measure. These values can then be used to compare this project with other projects. |
| Difficulty: 2 Medium  |
