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MKT 3360 PIM Chapter 7
Terms in this set (35)
The allocation of a finite quantity of resources over different possible uses is known as research rationing.
The ratio of R&D expenditures to sales is known as R&D trajectory.
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.
Both net present value and internal rate of return techniques provide concrete financial estimates that facilitate strategic planning and trade-off decisions.
Standard discounted cash flow analysis has the potential to severely undervalue a development project's contribution to a firm.
Calculating the internal rate of return of a project typically must be done by trial and error.
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.
Options are valuable when there is uncertainty, and because technology trajectories are uncertain, an options approach may be useful.
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.
The investor is an active driver of the value of an investment.
Breakthrough projects typically offer fundamental improvements in the cost, quality, and performance of a technology over preceding generations.
A derivative project is designed to serve a core group of consumers, whereas platform projects represent modifications of the basic platform design to appeal to different niches within that core group.
Conjoint analysis enables a subjective assessment of a complex decision to be decomposed into quantitative scores of the relative importance of different criteria.
Data envelopment analysis (DEA) utilizes linear programming.
The drawback to data envelopment analysis (DEA) is that it does not allow comparisons of projects using multiple kinds of measures.
_____ refers to the allocation of a finite quantity of resources over different possible uses.
Mark is a wealthy private financier who funds projects without utilizing a venture capital limited partnership structure. He typically provides funds for start-up projects that are $1 million or less. There have been instances in the past where Mark lost a huge share of money in some projects, but he also received high returns on some other projects. He is aware of the risks, but that does not stop him from funding start-ups. Which of the following would best describe Mark?
-He is a market leader.
-He is a laggard.
-He is an angel investor.
-He is a broker.
He is an angel investor.
Which of the following statements is true of angel investors?
-They are usually listed in public directories.
-They typically fund projects that are $50 million or more.
-They are often wealthy individuals who have been very successful in business.
-They avoid funding start-ups because of the high risks involved in these businesses.
They are often wealthy individuals who have been very successful in business.
Which of the following is true of quantitative methods of analyzing new projects, particularly in rapidly changing environments?
-They enable managers to use rigorous statistical comparisons of projects.
-Their accuracy is unquestionable.
-Discounted cash flow methods are the least commonly used quantitative methods.
-They are particularly accurate in highly uncertain or rapidly changing environments.
They enable managers to use rigorous statistical comparisons of projects.
The discounted cash inflows of a project minus the discounted cash outflows is referred to as the _____ of the project.
-internal rate of return
-net present value
net present value
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?
If the net present value of a project is greater than zero, then the:
-project cannot be carried out as the cash outflow is too high.
-present value of cash outflows is higher than the present value of cash inflow.
-project will require five years to break even.
-project generates wealth.
project generates wealth.
In the context of a research and development (R&D) program, which of the following can be considered the exercise price?
-The cost of the R&D program
-The cost of future investment required to capitalize on the R&D program
-The returns to the R&D investment
-The returns to the R&D investment minus the cost of the R&D program
The cost of future investment required to capitalize on the R&D program
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:
-price of a call option.
-benefit of exercising the option.
-the value of the option.
Which of the following is an advantage of using the real options approach of evaluating a project?
-It results in better technology investment decisions than a cash flow analysis approach.
-It is useful as technology investment scenarios often conform to the same capital market assumptions upon which the approach is based.
-It is cheap to use in case of a firm undertaking solo new product development.
-It is valuable only when there is no uncertainty in technology trajectories.
It results in better technology investment decisions than a cash flow analysis approach.
Which of the following is a disadvantage of using internal rate of return for assessing a project?
-It fails to take into account the time value of money and risk.
-It cannot be calculated by trial and error.
-It discriminates heavily against long-term and risky projects.
-It fails to provide concrete financial estimates.
It discriminates heavily against long-term and risky projects.
In the context of qualitative methods for choosing projects, screening questions are used mainly to:
-increase the rate of employee attrition.
-structure the discussion about project details like potential costs and benefits.
-increase employee turnover rates.
-choose the best consulting firm to analyze a potential project.
structure the discussion about project details like potential costs and benefits.
NewDigger Inc. makes backhoes for digging ditches and trenches. It has developed an environmental-friendly liquid 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.
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.
Coolers Inc., a house appliances manufacturer, has upgraded its technology by making all its appliances work on voice sensors instead of remote controls or manual operations. Though the technology is new, Coolers has decided to introduce the product in the market at the same rates as its earlier technology so that its usual customers can purchase these products. This project is a(n) _____ for Coolers Inc.
A firm that invests heavily in derivative projects that may be immediately commercialized with little risk:
-will have greater long-term strategic momentum.
-will be on the leading edge of technology.
-will likely be unable to compete when the market shifts to a newer technology.
-will have poor returns on its R&D investment in the short run.
will likely be unable to compete when the market shifts to a newer technology.
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.
Jack took part in a survey in which he was asked to rank the importance of certain features of the smart television he had recently purchased. 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 _____.
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?
-Data envelopment analysis
Which of the following statements is true of conjoint analysis?
-It is a simple method for ranking objects or ideas on a number of different dimensions.
-It is used by managers to compare their desired balance of projects with their actual balance of projects.
-It requires the creation of a hypothetical efficiency frontier.
-It is most commonly used to assess the relative importance to customers of different product attributes.
It is most commonly used to assess the relative importance to customers of different product attributes.
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