CHAPTER 8Implementing Strategies: Marketing, Finance/Accounting, R&D and CIS Issues

True/False

The Nature of Strategy Implementation

1. Less than 2 percent of strategies formulated are successfully implemented.

Ans: F Page: 276

2. Being long term in nature, strategy implementation affects top and middle managers and not the lower-level employees.

Ans: F Page: 276

3. Sabotage of strategy-implementation efforts is possible on the part of managers and employees who are not committed to the business.

Ans: T Page: 276

4. The lives of all employees are directly affected by strategy implementation.

Ans: T Page: 276

Marketing Issues

5. An example of a marketing decision is whether or not to limit the share of business done with a single customer.

Ans: T Page: 276

6. Given that most information on individuals is available online, the extent to which companies can track individuals’ movements on the Internet is not a marketing issue of great concern to consumers today.

Ans: F Page: 277

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7. Market segmentation and its counterpart, target marketing, rank as marketing’s most important contribution to strategic management.

Ans: F Page: 277

8. The most important marketing concepts that affect the success of strategy implementation efforts are market segmentation and product positioning.

Ans: T Page: 277

9. The subdividing of a market into distinct subsets of customers according to their needs and the way they buy and use a product or service is the definition of market segmentation.

Ans: T Page: 278

10. Market segmentation is most widely used in implementing strategies for large, multinational companies.

Ans: F Page: 278

11. The most common bases for segmenting markets are geographic and demographic.

Ans: T Page: 278

12. Segmentation is the key to matching supply and demand.

Ans: T Page: 278

13. The marketing mix component factors are product, place, promotion, price and people.

Ans: F Page: 278

14. With market segmentation, a firm can operate with limited resources.

Ans: T Page: 278

15. Promotion includes advertising, personal selling, sales promotion, publicity and financing.

Ans: F Page: 278

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16. Segmenting industrial markets is generally simpler and easier than segmenting consumer markets.

Ans: F Page: 278

17. Matching supply and demand minimizes the number and severity of stock-outs.

Ans: T Page: 279

18. A marketing issue of increasing concern to consumers today is the extent to which companies can track individuals’ movement on the Internet.

Ans: T Page: 281

19. Product segmentation involves developing schematic representations that reflect how competitors’ products or services compare to your firm’s.

Ans: F Page: 281

20. Market segmentation is followed by market diversification strategy.

Ans: F Page: 281

21. The next step after segmenting markets so the firm can target particular customer groups is to find out what customer groups want and expect.

Ans: T Page: 281

22. Multidimensional scaling involves examining three or more criteria simultaneously in a product-positioning analysis.

Ans: T Page: 281

23. A computer is not needed for multidimensional scaling to be performed.

Ans: F Page: 281

24. A firm can usually serve two or more market segments with the same strategy.

Ans: F Page: 282

25. “Look for the hole or vacant niche. The best strategic opportunity might be an unserved segment.” This rule of thumb is recommended for using product positioning as a strategy implementation tool.

Ans: T Page: 282

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26. It is okay for firms to create expectations that exceed the service the firm can or will offer if it will attract customers.

Ans: F Page: 283

Finance/Accounting Issues

27. By applying debt to products and projects earning more than the cost of the debt, theoretically, an enterprise should have enough debt in its capital structure to boost its return on investment.

Ans: T Page: 283

28. The most widely used technique for determining whether debt, stock, or a combination of debt and stock is the best alternative for raising capital to implement strategies is an EPS/EBIT analysis.

Ans: T Page: 283

29. The two basic sources of funds for an ongoing enterprise are debt and equity.

Ans: T Page: 283

30. Additional capital is often required for successful strategy implementation.

Ans: T Page: 283

31. When a company raises too much of its capital through debt during low periods, it can endanger stockholders’ return and jeopardize the company’s survival.

Ans: T Page: 283

32. Generally, stock is better than debt as a way to raise capital.

Ans: F Page: 283

33. EPS/EBIT analysis assumes or forecasts a specific range of figures for EBIT for the coming year, and these figures are used for all financing scenarios.

Ans: T Page: 283-284

34. Flexibility is one consideration when using EPS/EBIT analysis.

Ans: T Page: 284

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35. Some reasons for concern over the dilution of company stock are hostile takeovers, mergers and acquisitions.

Ans: T Page: 284-285

36. Ownership and control of the enterprise are diluted when additional debt is used to finance strategy implementation.

Ans: F Page: 284-285

37. When additional stock is issued to finance implementation of strategy, ownership and control of the enterprise are diluted.

Ans: T Page: 284-285

38. In times of depressed stock prices, stock issuances often prove to be the most suitable alternative for obtaining capital.

Ans: F Page: 285

39. A pro forma financial analysis can be used to forecast the impact of various implementation decisions.

Ans: T Page: 285

40. A method for specifying what must be done to get the strategy implementation job completed successfully is fundamentally the control measures.

Ans: F Page: 287

41. The balance sheet should be prepared before the income statement in performing pro forma financial analyses.

Ans: F Page: 287

42. For computing the cost of goods sold and the expense items in pro forma income statements, the percent-of-sales method should be used.

Ans: T Page: 287

43. Cash account is used as a plug figure in pro forma balance sheets.

Ans: T Page: 287

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44. A financial budget is a document that details how funds will be obtained and spent for a specified period of time.

Ans: T Page: 287

45. Limiting an organization’s expenditures is the primary purpose of financial budgets.

Ans: F Page: 287

46. The most common type of financial budget is the capital budget.

Ans: F Page: 287

47. Thousands of transactions occur each year in which businesses are bought or sold in the United States.

Ans: T Page: 288

48. A limitation of financial budgets is that they can hide inefficiencies if based solely on precedent rather than on periodic evaluation of circumstances and standards.

Ans: T Page: 288

49. All the methods for determining a business’ worth can be grouped into three basic approaches: what a firm owns, what a firm earns and what a firm spends.

Ans: F Page: 288-289

50. A conservative rule of thumb in measuring the value of a firm is to establish a business’ worth to be 10 times the firm’s most current annual profit.

Ans: F Page: 289

51. To determine the price-earnings ratio, divide the market price of the firm’s common stock by the annual earnings per share and multiply this number by the firm’s average net income for the past 10 years.

Ans: F Page: 289

52. For companies with less than $10 million in sales, going public is not recommended.

Ans: T Page: 289

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53. A recommended approach for determining a firm’s worth is to base the analysis on the selling price of a similar company.

Ans: T Page: 289

54. Buying off the outstanding shares of your company from the open market to make the company private is what going public means.

Ans: F Page: 289

Research and Development (R&D) Issues

55. Strategy-implementation efforts to emphasize product or process improvements are enhanced by R&D policies.

Ans: T Page: 290

56. The R&D function is generally more important in service industries than in manufacturing industries.

Ans: F Page: 291

57. If the rate of market growth and technical progress is fast and there are few barriers to possible new entrants, then in-house R&D is the preferred solution.

Ans: F Page: 291

58. According to research, the most successful new product companies use a research and development strategy that ties internal strengths to external opportunities and is linked with corporate objectives.

Ans: T Page: 291

59. R&D policies can enhance strategy implementation efforts to be leaders or followers in R&D.

Ans: T Page: 291

60. A major effort in R&D may be very risky if technology is changing rapidly and the market is growing slowly.

Ans: T Page: 292

61. One R&D strategy is to be an innovative imitator of successful products.

Ans: T Page: 292

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Management Information Systems (MIS) Issues

62. The process of strategic management is facilitated immensely in firms that have an effective information system.

Ans: T Page: 293

63. Increased costs are a downfall of a good information system.

Ans: F Page: 293

64. Information technology is doing away with the workplace and allowing employees to work at home or anywhere, anytime.

Ans: T Page: 294

Multiple Choice

The Nature of Strategy Implementation

65. What percent of strategies formulated are successfully implemented?a. Between 40 to 60 percentb. Approximately two-thirdsc. About 30 percentd. More than 80 percente. Less than 10 percent

Ans: e Page: 276

66. The lives of _______________are directly affected by strategy implementation.a. plant managersb. sales managersc. project managersd. division managerse. all of these

Ans: e Page: 276

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Marketing Issues

67. All of the following are examples of marketing decisions that require policies excepta. to be a market leader or follower.b. to advertise online or not.c. to offer a complete or limited warranty.d. to use heavy, light, or no TV advertising.e. to use exclusive dealerships or multiple channels of distribution.

Ans: a Page: 276

68. Two variables are of central importance to strategy implementation:a. diversification and budgeting.b. marketing penetration and competition.c. competition and collaboration.d. product development and market development.e. market segmentation and product positioning.

Ans: e Page: 277

69. Subdividing a market into distinct subsets of customers according to their needs and the way they buy and use a product or service isa. market penetration.b. product diversification.c. market segregation.d. market segmentation.e. positioning.

Ans: d Page: 278

70. Market segmentation is an important variable in strategy implementation becausea. all company strategies require increased sales through new markets and

products.b. it allows a firm to operate with limited resources.c. mass production, mass distribution and mass advertising are not always

requiredd. all of the above.

Ans: d Page: 278

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71. Perhaps the most dramatic new market segmentation strategy is the a. targeting of regional tastes.b. focusing on universal product.c. preference of international over domestic sales.d. treatment of industrial markets.e. none of these

Ans: a Page: 278

72. Web advertising dollars spent by businesses increased to what percent of total advertising expenditures in 2002?a. 17b. 27c. 37d. 47e. 57

Ans: b Page: 278

73. Variables such as_______________ are directly affected by market segmentation.a. product and placeb. promotion and pricec. both a and bd. none of the above

Ans: c Page: 278

74. Market segmentation is an important variable in the strategy-implementation process becausea. company strategies do not require increased sales through new markets and

products.b. it allows a firm to operate with no resources.c. it directly affects marketing mix variables.d. all of the above

Ans: c Page: 278

75. Matching ______________ allows factories to produce desirable levels without extra shifts, overtime and subcontracting.a. markets and competitorsb. competition and positioningc. customer behavior and positioningd. supply and demande. segments and demand

Ans: d Page: 279

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76. What entails developing schematic representations that reflect how your products or services compare to competitors’ on dimensions most important to success in the industry?a. Positioningb. Segmentationc. Penetrationd. Diversificatione. Budgeting

Ans: a Page: 281

77. Which of these is not a correct step in product positioning?a. Select key criteria that effectively differentiate products or services in the

industry.b. Diagram a four-dimensional products positioning map with specified criteria

on four axes.c. Plot major competitors’ products or services in the resultant matrix.d. Identify areas in the positioning map where the company’s products or

services could be most competitive in the given target market.e. All of these are correct steps in product positioning.

Ans: b Page: 281

78. Looking for a vacant niche helps a company determinea. its advertising budget.b. the size of the marketing department.c. the best place to position a product.d. the best place to locate a new facility.

Ans: c Page: 281

79. Multidimensional scaling is used to determinea. the size of a new building.b. the size of a new department.c. the amount of high-tech equipment a firm needs.d. product positioning.

Ans: d Page: 281

80. Which of the following is (are) true about two different market segments?a. They can usually be served with the same marketing strategy.b. They usually require different marketing strategies.c. They are always in different geographic locations.d. They are usually incompatible.

Ans: b Page: 282

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81. Which of these is not a rule of thumb when using product positioning as a strategy-implementation tool?a. “Don’t squat between segments”b. “Look for the hole or vacant niche”c. “Try to serve more than one segment with the same strategy”d. “Don’t position yourself in the middle of the map”

Ans: c Page: 282-283

Finance/Accounting Issues

82. Which of the following is not an example of a decision that may require finance/accounting policies?a. To extend the time of accounts receivableb. To establish a certain percentage discount on accounts within a specified

period of timec. To lease or buy fixed assetsd. To use LIFO, FIFO, or a market-value accounting approache. To determine the amount of product diversification

Ans: e Page: 283

83. In the low earnings period, too much __________ in the capital structure of an organization can endanger stockholders’ return and jeopardize company survival.a. debtb. liquid assetsc. equityd. cash

Ans: a Page: 283

84. Which of these obligations generally must be met, regardless of circumstances?a. Moralb. Employeec. Fixed debtd. Equitye. All of these

Ans: c Page: 283

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85. What is the most widely used technique for determining the best combination of debt and stock?a. Debt-to-stock ratiob. Earnings per share/earnings before interest and tax analysisc. Gross profit analysisd. Capital asset pricing modele. Present value analysis

Ans: b Page: 283

86. If the debt line is above the stock line throughout the range of EBIT on the graph, what conclusions would you make after completing an EPS/EBIT analysis?a. Debt would be the best financing alternative.b. Stock would be the best financing alternative.c. A combination of debt and stock would be the best financing alternative.d. Other factors must be considered before conclusions can be made.

Ans: a Page: 284-285

87. After completing an EPS/EBIT analysis, what conclusions would you make if the debt line is above the stock line throughout the range of EBIT on the graph?a. Debt appears to be the best financing alternative.b. Stock would be the best financing alternative.c. A combination of debt and stock is probably the best financial alternative.d. Dividends must be considered before conclusions can be made.

Ans: a Page: 284-285

88. When cost of capital is high, __________ becomes a more attractive financing technique.a. stock issuanceb. debtc. cost cuttingd. borrowing

Ans: a Page: 285

89. What is a drawback of using only equity to raise capital?a. The costb. Fluctuations in the stock marketc. Dilution of the control of the companyd. That it will cause EPS to roller coaster

Ans: c Page: 285

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90. A benefit of using pro forma balance sheets and income statements is thata. an organization can compute projected financial ratios under various

scenarios.b. money can be put aside to pay future income taxes.c. insurance needs can be computed.d. all of the above.

Ans: a Page: 285

91. Pro forma financial analysis is an important strategy-implementation technique becausea. it is an exact measurement of financial costs in the future.b. it is an exact measurement of future company profits.c. it allows an organization to examine the expected results of various actions

and approaches.d. none of the above

Ans: c Page: 285

92. _____________ is a central strategy-implementation technique because it allows an organization to examine the expected results of various actions and approaches.a. EPS/EBITb. Financial budgetingc. TOWS analysisd. Pro forma financial statement analysise. External analysis

Ans: d Page: 285

93. The first step in preparing pro forma statements is to a. prepare the balance sheet.b. take an inventory of goods.c. estimate increases in debt.d. prepare the income statement.

Ans: d Page: 287

94. In preparing pro forma statements, to project cost of goods sold and the expense items in the income statement, which of these methods is recommended?a. Determining the net worth methodb. What a firm earns method c. Percentage-of-sales methodd. Price-earnings ratio mete. Outstanding shares method

Ans: c Page: 287

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95. __________ in the pro forma income statement cannot be forecasted using the percentage-of-sales method.a. Cost of goods soldb. Selling expensec. Administrative expensed. Interest expensee. All of these items are forecasted using the percentage-of-sales method.

Ans: d Page: 287

96. Retained earnings is obtained by subtractinga. any dividends from net income.b. net income from EBIT.c. taxes from EBIT.d. interest expense from EBT.e. EBIT from CGS.

Ans: a Page: 287

97. In pro forma financial statements, the ___________ account is used as a plug figure.a. retained earnings b. fixed assets c. cash d. long-term liabilities e. stockholders’ equity

Ans: c Page: 287

98. Which of these is the most common type of budgeting time frame?a. Dailyb. Quarterlyc. Annuald. Every decadee. Monthly

Ans: c Page: 287

99. The most common type of financial budget is the __________ budget.a. cashb. salesc. profitsd. factoryc. flexible

Ans: a Page: 287

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100. Who has mandated that every publicly held company in the United States must issue an annual cash-flow statement in addition to the usual financial reports?a. SECb. Congressc. FCCd. FASBe. OPEC

Ans: d Page: 287

101. ________________, an accounting item, ties together the income statement and balance sheet when performing a pro forma financial analysis.a. The cash accountb. The retained earnings accountc. The net profits accountd. The equity accounte. The goodwill account

Ans: b Page: 287

102. How should financial budgets be thought of?a. A tool for limiting expendituresb. A method for obtaining the most productive and profitable use of an

organization’s resourcesc. A method for rationing the profits from the past yeard. A method for determining who should receive the largest pay raise

Ans: b Page: 287

103. __________ is/are the common type(s) of budget(s).a. Cash budgetsb. Operating budgetsc. Sales budgetsd. All of the abovee. Only a & c

Ans: d Page: 287

104. What is a limitation of using financial budgets?a. They can be so detailed that they are cumbersome and expensiveb. They can become a substitute for objectivesc. They can hide inefficiencies if done only on precedentd. All of the above

Ans: d Page: 288

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105. __________ of transactions occur each year in which businesses are bought or sold in the United States.a. Fewb. Hundredsc. Thousandsd. Millionse. Billions

Ans: c Page: 288

106. Which of the following methods is not accepted for determining a business’ worth?a. What the firm ownsb. What the firm earnsc. What the firm’s return on investment has beend. What the firm will bring in the market

Ans: c Page: 288-289

107. The three main approaches for determining a firm’s worth area. what a firm owns, what a firm earns and what a firm will bring in the market.b. number of employees, number of stockholders and value of assets.c. amount of annual sales, number of products on the market and number of

stockholders.d. amount of debt the firm has, past sales and what a firm owns.

Ans: a Page: 288-289

108. __________ is/are not included in net worth.a. Fixed assetsb. Common stockc. Additional paid-in-capitald. Retained earningse. All of these are included in net worth

Ans: a Page: 289

109. Net worth is also referred to asa. total assets.b. stockholders’ equity.c. fixed assets.d. long-term liabilities.e. liquid assets.

Ans: b Page: 289

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110. The average total cost paid to lawyers, accountants and underwriters is __________ when an initial stock issuance is under $1 million.a. 1 dollar in 20b. 1 dollar in 10c. 25 percentd. 5 percente. 40 percent

Ans: c Page: 289

111. Which method of determining a firm’s net worth is where you divide the market price of the firm’s stock by the annual earnings per share and multiply this number by the firm’s average net income for the past five years?a. debt/equity methodb. current ratio methodc. price-earnings ratio methodd. long-term asset method

Ans: c Page: 289

112. One important reason for knowing the worth of a firm is thata. divestiture may result in the firm being sold.b. the SEC requires an annual evaluation of worth in the annual report.c. stockholders often ask for this information.d. it is important to know for tax purposes.

Ans: a Page: 289

113. Which of these describes the worth of a company?a. An exact scienceb. An educated guessc. Indeterminabled. Known only to the firm’s accountants

Ans: b Page: 289

Research and Development (R&D) Issues

114. R&D employees and managers perform all of the following tasks excepta. transferring complex technology.b. alternating products to particular tastes and specifications.c. researching resource availability.d. adapting processes to local markets.e. adjusting process to local raw materials.

Ans: c Page: 291

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115. In-house R&D is a preferred solution in all of these situations except which one?a. If the rate of technical progress is slowb. If the rate of market growth is moderatec. If there are significant barriers to possible new entrantsd. If technology is changing rapidly and the market is growing fastc. In-house R&D is a preferred solution in all of these.

Ans: d Page: 291-292

116. Which of the following is not a major approach to R&D?a. To be a pioneerb. To be an innovative imitatorc. To be a low-cost producer by mass-producing products similar to but less

expensive than products recently introducedd. To be a liquidator

Ans: d Page: 292

117. The attitude of U.S. firms toward research and development is best described bya. the veil of secrecy is being lifted, resulting in more collaboration.b. firms are more cutthroat than ever and less cooperative with each other.c. firms are less interested in working with universities.d. firms are spending less in total research and development expenditures.

Ans: a Page: 292

Management Information Systems (MIS) Issues

118. ____________ is the basis for understanding in a firm.a. Technologyb. Informationc. R&Dd. Budgetinge. Financing

Ans: b Page: 292

119. A good information system can allow a firm toa. gain competitive advantageb. reduce costsc. increase productivityd. increase customerse. reduce turnover

Ans: b Page: 293

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Essay Questions

120. Although there are many marketing variables that impact the success or failure of strategy-implementation efforts, two variables are central to the process. What are these variables? Discuss why they are so important.

Two variables of central importance to strategy implementation are market segmentation and product positioning. Segmentation is important because it is a key to matching supply and demand, which is one of the thorniest problems in customer service. Segmentation often reveals that large, random fluctuations in demand actually consist of several small, predictable and manageable patterns. Product positioning is important because it is a severe mistake to assume the firm knows what customers want and expect. Many firms have become successful by filling the gap between what customers and producers see as good service. What the customer believes is good service is paramount, not what the producer believes service should be. Positioning entails developing schematic representations that reflect how a firm’s products or services compare to competitors’ on dimensions most important to success in the industry. Page: 277-281

121. What are the marketing-mix component factors? Give some examples of each.

The marketing-mix component factors consist of product, place, promotion and price. Please refer to Table 8-1 on page 278 for examples of each factor.

Page: 278

122. Psychographics and behavioral approaches to market segmentation are sometimes, but not commonly, used. Give examples and the typical breakdowns of the examples.

Examples of psychographic variables include social class and personality. Behavioral variables include use occasion, benefits sought, user status, usage rate, loyalty status, readiness stage and attitude toward product. Please refer to Table 8-2 on page 279 for the typical breakdowns of the examples.

Page: 279

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123. What are the five steps required for effective product positioning? Give an example of a product-positioning matrix for an organization of your choice.

There are five steps required for effective product positioning. These five steps are as follows: (1) select key criteria that effectively differentiate products or services in the industry, (2) diagram a two-dimensional product-positioning map with specified criteria on each axis, (3) plot major competitors’ products or services in the resultant four-quadrant matrix, (4) identify areas in the positioning map where the company’s products or services could be most competitive in the given target market and look for niches and (5) develop a marketing plan to position the company’s products or services appropriately.

Student examples of product-positioning matrices will vary.

Page: 281

124. Describe the considerations of EPS/EBIT analysis.

There are four considerations of EPS/EBIT analysis: 1) profit levels may be higher for stock or debt alternatives when EPS levels are lower, 2) flexibility, 3) dilution of ownership can be an overriding concern in closely held corporations in which stock issuances affect the decision-making power of majority stockholders and 4) timing in relation to movements of stock prices, interest rates and bond prices becomes important.

Page: 284-285

125. Explain how to perform a pro forma financial analysis.

The steps to performing a pro forma financial analysis are as follows: (1) prepare the pro forma income statement before the balance sheet and start by forecasting sales as accurately as possible, (2) use the percentage-of-sales method to project CGS and the expense items in the income statement, (3) calculate the projected net income, (4) subtract from the net income any dividends to be paid and add the remaining net income to Retained Earnings, (5) project the balance sheet items, beginning with retained earnings and then forecasting stockholders’ equity, long-term liabilities, total liabilities, total assets, fixed assets and current assets—in that order and (6) list comments on the projected statements.

Page: 287

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126. In preparing projected financial statements, what must be done if at the end of your pro forma analysis you discover the cash figure needed to balance the assets with liabilities and net worth is way too low to carry on normal operations of the firm?

If the cash needed to balance the statements is too small, make appropriate changes to borrow more money than planned.

Page: 287

127. Identify and describe three approaches for determining a business’ worth.

The three approaches for determining a business’ worth are what a firm owns, what a firm earns and what a firm will bring in the market. Please see the discussion on page 289 under Evaluating the Worth of a Business for descriptions of each approach.

Page: 288-289

128. Explain the important issues involved in deciding whether to go public, i.e., a private firm considering becoming a public firm. Include cost estimates, advantages and disadvantages.

Please refer to the entire discussion on pages 289-290 under Deciding Whether to Go Public for this answer.

Page: 289-290

129. List and describe the three major R&D approaches for implementing strategies.

The three major R&D approaches for implementing strategies are: (1) to be the first firm to market new technological products, (2) to be an innovative imitator of successful products, thus minimizing the risks and costs of start-up and (3) to be a low-cost producer by mass-producing products similar to but less expensive than products recently introduced.

See page 292 under R&D Issues for descriptions of each approach.

Page: 292

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