BUSI 4940 EXAM 2 QUESTIONS & ANSWERS
You are the CEO of a table lamp manufacturing company. Investment bankers have
approached you with the opportunity to acquire a competitor firm for $350 million. You
will need to raise capital to complete the acquisition, and you have been told that the
hurdle rate of the investors you would use to do this transaction is 14%. Your company's
current WACC is 7%. Your team ran variety of forecasts, and you expect that
transaction would generate a 14.7% IRR and an NPV of $62 million using WACC as
your discount rate. All else equal, what should be your decision regarding the
transaction?
A. Do the deal
B. Ask your investors to reconsider what their hurdle rate expectations are
C. Recalculate the forecasts using a lower WACC
D. Don't do the deal - Answers - A
The letter "I" in the VRIS framework stands for ____.
A. Identification
B. Indemnity
C. Individual
D. Imitability - Answers - D
Capabilities typically come from:
A : individual resources.
B : one unique resource.
C : several outstanding resources used independently.
D : combining organizational resources - Answers - D
The reputation of Amazon as being one of the best places to shop online would be
considered a ____ category of resource.
A. Barrier to entry
B. Global
C. Tangible
D. Intangible - Answers - D
The Ken Cory Company's main product is a tiny portable hidden camera that is only one
cubic inch in size, and the video can be viewed on the internet from nearly any location
in the world. Their device is very new and is still working out some problems, but there
are no other tiny portable hidden cameras like it in the world that work through the
internet and it should be very difficult to imitate by competitors.
Investors told the Ken Cory Company they expected to earn a risk-adjusted return of
14% on their investment, and the device has already shown that it's profitable having
, provided an 11% return on investment. From a VRIS perspective, which of the following
is a correct description of the Ken Cory Company's situation?
A. The device is valuable and rare and a source of competitive advantage
B. The device is not considered to be valuable and therefore needs to be improved or
sold off
C. The device is valuable, - Answers - B
Which of the following is most likely to lead to an "Incompetency" for a company?
A. Being at a competitive disadvantage to a stronger company in the industry
B. Having a short-term competitive advantage that is easily copied
C. Having problem with not income that threatens the company's ability to pay common
shareholders a dividend
D. Having a liquidity problem threatening the company's ability to pay debt holders -
Answers - D
All of the following are tangible resources EXCEPT:
A. production equipment.
B. distribution centers.
C. employees.
D. a company's available cash.
E. they are all tangible resources. - Answers - E
Which of the following is NOT a factor affecting the future sustainability of a competitive
advantage?
A. Availability of substitutes for a firm's distinctive competence.
B. The potential for the distinctive competence to quickly diminish in value over time due
to technological innovations in the industry
C. The imitability of distinctive competence
D. Length of time the distinctive competence has already existed - Answers - D
Which level of strategy is focused primarily on how to compete to gain a competitive
advantage within a single line of business?
A. Business-level
B. Corporate-level
C. Functional-level
D. Global-level - Answers - A
Which category of resources is typically the most difficult for other companies to
imitate?
A. Intangible
You are the CEO of a table lamp manufacturing company. Investment bankers have
approached you with the opportunity to acquire a competitor firm for $350 million. You
will need to raise capital to complete the acquisition, and you have been told that the
hurdle rate of the investors you would use to do this transaction is 14%. Your company's
current WACC is 7%. Your team ran variety of forecasts, and you expect that
transaction would generate a 14.7% IRR and an NPV of $62 million using WACC as
your discount rate. All else equal, what should be your decision regarding the
transaction?
A. Do the deal
B. Ask your investors to reconsider what their hurdle rate expectations are
C. Recalculate the forecasts using a lower WACC
D. Don't do the deal - Answers - A
The letter "I" in the VRIS framework stands for ____.
A. Identification
B. Indemnity
C. Individual
D. Imitability - Answers - D
Capabilities typically come from:
A : individual resources.
B : one unique resource.
C : several outstanding resources used independently.
D : combining organizational resources - Answers - D
The reputation of Amazon as being one of the best places to shop online would be
considered a ____ category of resource.
A. Barrier to entry
B. Global
C. Tangible
D. Intangible - Answers - D
The Ken Cory Company's main product is a tiny portable hidden camera that is only one
cubic inch in size, and the video can be viewed on the internet from nearly any location
in the world. Their device is very new and is still working out some problems, but there
are no other tiny portable hidden cameras like it in the world that work through the
internet and it should be very difficult to imitate by competitors.
Investors told the Ken Cory Company they expected to earn a risk-adjusted return of
14% on their investment, and the device has already shown that it's profitable having
, provided an 11% return on investment. From a VRIS perspective, which of the following
is a correct description of the Ken Cory Company's situation?
A. The device is valuable and rare and a source of competitive advantage
B. The device is not considered to be valuable and therefore needs to be improved or
sold off
C. The device is valuable, - Answers - B
Which of the following is most likely to lead to an "Incompetency" for a company?
A. Being at a competitive disadvantage to a stronger company in the industry
B. Having a short-term competitive advantage that is easily copied
C. Having problem with not income that threatens the company's ability to pay common
shareholders a dividend
D. Having a liquidity problem threatening the company's ability to pay debt holders -
Answers - D
All of the following are tangible resources EXCEPT:
A. production equipment.
B. distribution centers.
C. employees.
D. a company's available cash.
E. they are all tangible resources. - Answers - E
Which of the following is NOT a factor affecting the future sustainability of a competitive
advantage?
A. Availability of substitutes for a firm's distinctive competence.
B. The potential for the distinctive competence to quickly diminish in value over time due
to technological innovations in the industry
C. The imitability of distinctive competence
D. Length of time the distinctive competence has already existed - Answers - D
Which level of strategy is focused primarily on how to compete to gain a competitive
advantage within a single line of business?
A. Business-level
B. Corporate-level
C. Functional-level
D. Global-level - Answers - A
Which category of resources is typically the most difficult for other companies to
imitate?
A. Intangible
