Strategic Management of Technological Innovation 5th Edition by MELISSA A SCHILLING Test Bank

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Strategic Management of Technological Innovation 5th Edition by MELISSA A SCHILLING Test Bank

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WITH ANSWERS

Strategic Management of Technological Innovation 5th Edition by MELISSA A SCHILLING Test Bank

Chapter 06

Defining the Organizations 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 Porters five-force model, the threat of potential entrants is influenced by the height of entry barriers.

True    False

 

6. According to Porters 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 Porters 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 firms 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 Hamels 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 Porters five-force model?

A. It states that the attractiveness of an industry is unaffected by the industrys degree of rivalry.

 

B. It fails to acknowledge the role of substitutes for customers.

 

C. It is often used in practice to assess a specific firms external environment.

 

D. It states that oligopolistic industries are less competitive if firms choose to engage in price wars.

 

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 Porters five-force model, the company is facing a(n):

A. vertical integration.

 

B. exit barrier.

 

C. horizontal integration.

 

D. substitute threat.

 

18. According to Porters five-force model, if suppliers of a particular good are very abundant, _____.

A. their bargaining power will be less

 

B. their level of differentiation will be very high

 

C. their level of vertical integration in the industry will be high

 

D. their annual employee turnover rates will be less

 

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:

A. the supplier had more bargaining power than the firm.

 

B. the supply was unlimited.

 

C. the supply exceeded the demand.

 

D. the industry had barriers to entry.

 

20. According to Porters five-force model, if a buyer can threaten to backward vertically integrate, it will:

A. decrease the buyers bargaining power.

 

B. increase the buyers bargaining power.

 

C. increase the suppliers bargaining power.

 

D. lower the threat of entry into the industry.

 

21. Factors that make it difficult or expensive to change suppliers or buyers are referred to as _____.

A. transactional costs

 

B. monopoly costs

 

C. marginal costs

 

D. switching costs

 

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:

A. forward vertical integration.

 

B. backward vertical integration.

 

C. horizontal integration.

 

D. substitution.

 

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 womens fashion apparel. Allure Fabrics is practicing:

A. forward vertical integration.

 

B. backward vertical integration.

 

C. horizontal integration.

 

D. substitution.

 

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:

A. bargaining power of buyers.

 

B. bargaining power of suppliers.

 

C. threat of substitutes.

 

D. vertical integration of buyers.

 

25. Ample Espresso Corp. is a coffeehouse located across from Tians Kitchen, a restaurant. According to Porters five-force model, the services and products provided by both are most accurately classified as:

A. complements.

 

B. competitors.

 

C. substitutes.

 

D. intermediates.

 

26. Sams 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 Porters five-force model, the two products are:

A. complements.

 

B. supplements.

 

C. intermediates.

 

D. substitutes.

 

27. The Corner Shop Corp. is a leading supermarket chain in Chicago. According to Michael Porters model of a value chain, which of the following activities of the firm is a primary activity?

A. A training session for the floor attendants at The Corner Shop outlets

 

B. An advertising campaign for a new The Corner Shop outlet

 

C. The accounting function at The Corner Shop outlets

 

D. The hiring of lawyers to ensure that the firm adheres to labor laws

 

28. According to Michael Porters model of a value chain, which of the following is a support activity?

A. Accounting activities

 

B. Outbound logistics

 

C. Marketing

 

D. Inbound logistics

 

29. Which of the following would be an example of a tacit resource?

A. An oddsmaker who works for a large casino in Las Vegas and is correct 95 percent of the time

 

B. Hand-woven fabrics made by local shops

 

C. Chipset manufacturing machine bought by an electronics company

 

D. A distiller used to make malt liquor

 

30. A resource can be extremely difficult to imitate if:

A. it can be readily codified in written form.

 

B. it is not path dependent.

 

C. it arises through the complex interaction of multiple people.

 

D. it is clear how the resource gives rise to value.

 

31. Socially complex resources are:

A. resources or activities that emerge through the interaction of multiple individuals.

 

B. resources that cannot be defined in terms of a numerical value.

 

C. resources that require public sanction in order to be utilized for profit-making purposes.

 

D. resources that are shared by different parties thereby making them easily imitable.

 

32. The relationship between a _____ resource and the outcome it produces is poorly understood.

A. socially complex

 

B. causally ambiguous

 

C. logistically outbound

 

D. logistically inbound

 

33. Which of the following statements is true of core competencies?

A. A firms core competency refers to a single ability.

 

B. A firms core competency is more than just a core technology.

 

C. An individual business unit has only one core competency.

 

D. A firms core competency is usually easy to imitate.

 

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:

A. dynamic capabilities.

 

B. tacit resources.

 

C. rigid competencies.

 

D. to be path dependent.

 

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:

A. vertical integration.

 

B. strategic intent.

 

C. monopoly rent.

 

D. supplier bargaining power.

 

 

Essay Questions

36. Explain the influences on the threat of potential entrants into a market according to Porters 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 Organizations 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 Porters 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 Porters 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 Porters 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 firms 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 Hamels 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 Porters five-force model?

A. It states that the attractiveness of an industry is unaffected by the industrys degree of rivalry.

 

B. It fails to acknowledge the role of substitutes for customers.

 

C. It is often used in practice to assess a specific firms external environment.

 

D. It states that oligopolistic industries are less competitive if firms choose to engage in price wars.

 

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 Porters five-force model, the company is facing a(n):

A. vertical integration.

 

B. exit barrier.

 

C. horizontal integration.

 

D. substitute threat.

 

Difficulty: 3 Hard
 

 

18.
(p. 113)
According to Porters five-force model, if suppliers of a particular good are very abundant, _____.

A. their bargaining power will be less

 

B. their level of differentiation will be very high

 

C. their level of vertical integration in the industry will be high

 

D. their annual employee turnover rates will be less

 

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:

A. the supplier had more bargaining power than the firm.

 

B. the supply was unlimited.

 

C. the supply exceeded the demand.

 

D. the industry had barriers to entry.

 

Difficulty: 3 Hard
 

 

20.
(p. 113-114)
According to Porters five-force model, if a buyer can threaten to backward vertically integrate, it will:

A. decrease the buyers bargaining power.

 

B. increase the buyers bargaining power.

 

C. increase the suppliers bargaining power.

 

D. lower the threat of entry into the industry.

 

Difficulty: 2 Medium
 

 

21.
(p. 114)
Factors that make it difficult or expensive to change suppliers or buyers are referred to as _____.

A. transactional costs

 

B. monopoly costs

 

C. marginal costs

 

D. switching costs

 

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:

A. forward vertical integration.

 

B. backward vertical integration.

 

C. horizontal integration.

 

D. substitution.

 

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 womens fashion apparel. Allure Fabrics is practicing:

A. forward vertical integration.

 

B. backward vertical integration.

 

C. horizontal integration.

 

D. substitution.

 

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:

A. bargaining power of buyers.

 

B. bargaining power of suppliers.

 

C. threat of substitutes.

 

D. vertical integration of buyers.

 

Difficulty: 3 Hard
 

 

25.
(p. 114)
Ample Espresso Corp. is a coffeehouse located across from Tians Kitchen, a restaurant. According to Porters five-force model, the services and products provided by both are most accurately classified as:

A. complements.

 

B. competitors.

 

C. substitutes.

 

D. intermediates.

 

Difficulty: 2 Medium
 

 

26.
(p. 114)
Sams 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 Porters five-force model, the two products are:

A. complements.

 

B. supplements.

 

C. intermediates.

 

D. substitutes.

 

Difficulty: 2 Medium
 

 

27.
(p. 116)
The Corner Shop Corp. is a leading supermarket chain in Chicago. According to Michael Porters model of a value chain, which of the following activities of the firm is a primary activity?

A. A training session for the floor attendants at The Corner Shop outlets

 

B. An advertising campaign for a new The Corner Shop outlet

 

C. The accounting function at The Corner Shop outlets

 

D. The hiring of lawyers to ensure that the firm adheres to labor laws

 

Difficulty: 2 Medium
 

 

28.
(p. 116)
According to Michael Porters model of a value chain, which of the following is a support activity?

A. Accounting activities

 

B. Outbound logistics

 

C. Marketing

 

D. Inbound logistics

 

Difficulty: 1 Easy
 

 

29.
(p. 118)
Which of the following would be an example of a tacit resource?

A. An oddsmaker who works for a large casino in Las Vegas and is correct 95 percent of the time

 

B. Hand-woven fabrics made by local shops

 

C. Chipset manufacturing machine bought by an electronics company

 

D. A distiller used to make malt liquor

 

Difficulty: 3 Hard
 

 

30.
(p. 118)
A resource can be extremely difficult to imitate if:

A. it can be readily codified in written form.

 

B. it is not path dependent.

 

C. it arises through the complex interaction of multiple people.

 

D. it is clear how the resource gives rise to value.

 

Difficulty: 2 Medium
 

 

31.
(p. 118)
Socially complex resources are:

A. resources or activities that emerge through the interaction of multiple individuals.

 

B. resources that cannot be defined in terms of a numerical value.

 

C. resources that require public sanction in order to be utilized for profit-making purposes.

 

D. resources that are shared by different parties thereby making them easily imitable.

 

Difficulty: 2 Medium
 

 

32.
(p. 118)
The relationship between a _____ resource and the outcome it produces is poorly understood.

A. socially complex

 

B. causally ambiguous

 

C. logistically outbound

 

D. logistically inbound

 

Difficulty: 1 Easy
 

 

33.
(p. 119)
Which of the following statements is true of core competencies?

A. A firms core competency refers to a single ability.

 

B. A firms core competency is more than just a core technology.

 

C. An individual business unit has only one core competency.

 

D. A firms core competency is usually easy to imitate.

 

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:

A. dynamic capabilities.

 

B. tacit resources.

 

C. rigid competencies.

 

D. to be path dependent.

 

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:

A. vertical integration.

 

B. strategic intent.

 

C. monopoly rent.

 

D. supplier bargaining power.

 

Difficulty: 2 Medium
 

 

Essay Questions

36.
(p. 113)
Explain the influences on the threat of potential entrants into a market according to Porters five-force model.

According to Porters 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 companys 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 firms 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.
The disadvantage is that the organizational culture may reward employees who are most closely connected to core competencies with higher status and better access to other organizational resources. While these systems and norms can prove beneficial in reinforcing and leveraging the firms existing core competencies, they can also inhibit the development of new core competencies. Firms that have well-developed knowledge sets along a particular trajectory may find it very hard to assimilate or utilize knowledge that appears unrelated to that trajectory, potentially limiting the firms flexibility. Students answers may vary.

 

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 projects 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 holders behavior, the value of a R&D investment is not independent of the investors 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.

A. Systematic enrollment

 

B. Translational funding

 

C. Organizational appropriation

 

D. Capital rationing

 

17. Which of the following is true of quantitative methods of analyzing new projects, particularly in rapidly changing environments?

A. They enable managers to use rigorous statistical comparisons of projects.

 

B. Their accuracy is unquestionable.

 

C. Discounted cash flow methods are the least commonly used quantitative methods.

 

D. They are particularly accurate in highly uncertain or rapidly changing environments.

 

18. The discounted cash inflows of a project minus the discounted cash outflows is referred to as the _____.

A. internal rate of return

 

B. net present value

 

C. real option

 

D. screening value

 

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?

A. $2,000

 

B. $5,000

 

C. $10,000

 

D. $15,000

 

20. If the net present value of a project is greater than zero, then the:

A. project cannot be carried out as the cash outflow is too high.

 

B. present value of cash outflows is higher than present value of cash inflow.

 

C. project will require 5 years to break even.

 

D. project generates wealth.

 

21. Which of the following is true of the internal rate of return of a project?

A. The discounted cash flow estimates are only as accurate as the original estimates of the profit.

 

B. It maximizes the net present value of the investment.

 

C. It neglects the timing of investment and cash flows.

 

D. It does not discriminate against projects that are long term or risky.

 

22. Which of the following is a disadvantage of using internal rate of return for assessing a project?

A. It fails to take into account the time value of money and risk.

 

B. It cannot be calculated by trial and error.

 

C. It discriminates heavily against long-term and risky projects.

 

D. It fails to provide concrete financial estimates.

 

23. With respect to a research and development (R&D) program, which of the following can be considered the exercise price?

A. The cost of the R&D program

 

B. The cost of future investment required to capitalize on the R&D program

 

C. The returns to the R&D investment

 

D. The returns to the R&D investment minus the cost of the R&D program

 

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:

A. exercise price.

 

B. price of a call option.

 

C. benefit of exercising the option.

 

D. the value of the option.

 

25. Which of the following is an advantage of using the real options approach of evaluating a project?

A. It results in better technology investment decisions than a cash flow analysis approach.

 

B. It is useful as technology investment scenarios often conform to the same capital market assumptions upon which the approach is based.

 

C. It is cheap to use in case of a firm undertaking solo new product development.

 

D. It is valuable only when there is no uncertainty in technology trajectories.

 

26. In the context of qualitative methods for choosing projects, scre

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