Chapter 7, Problem 9Q

New entrants are attracted when the organizations’ profits are well in excess of the cost of capital. At the same time the threat of entry depends on the existence of barriers to entry and the reaction of existing competitors. Analyze barriers which make the threat of entry low with examples.

Is it feasible for a new company endeavor to be lucrative while also experiencing financial difficulties?

Which one of the following is a soft benefit?    Depreciation tax shield   Reduction in the number of items spoiled during processing     Enhanced reputation of the company   Decreased time to receive and process customers’ payments

A paper published in the Harvard Business Review points out a new way to calculate economic profit that could be more appropriate for service firms and other people-intensive companies. Instead of focusing on investment and return on investment, the focus is on employee productivity, both in terms of generating revenues and reducing costs.   The approach is to first determine economic profit in the conventional way, except that we ignore taxes, so that economic profit is before tax, as follows:   Economic profit = Operating profit − Capital charge   Assume the following information for a hotel chain that wishes to adopt the new method. The firm has $100 million in operating profit, has $1 billion in investment, and uses a cost of capital rate of 5%, so the capital charge is $50 million and the economic profit is $50 million. Relevant calculations are contained in Part 1 of the following schedule:       Part 1: Economic Profit (in thousands, except cost of capital rate)…

A paper published in the Harvard Business Review points out a new way to calculate economic profit that could be more appropriate for service firms and other people-intensive companies. Instead of focusing on investment and return on investment, the focus is on employee productivity, in terms of both generating revenues and reducing costs.   The approach is to first determine economic profit in the conventional way, except that we ignore taxes, so that economic profit is before tax, as follows:   Economic profit = Operating profit − Capital charge   Assume the following information for a hotel chain that wishes to adopt the new method. The firm has $100 million in operating profit, has $1 billion in investment, and uses a cost of capital rate of 5%, so the capital charge is $50 million and the economic profit is $50 million. Relevant calculations are contained in Part 1 of the following schedule:   Part 1: Economic Profit (in thousands, except cost of capital rate)   Revenue $…

During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.       Assume that you are Cochran’s assistant and that you must help her answer the following questions: What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What effect did it have on liabilities and equity? What do you conclude from the statement of cash flows?

Fill in the blank for part A and B.  A. Higher margin businesses ________________________ than lower margin businesses. a. Usually use the same amount of operating assets b. Can use more operating assets c. Must use fewer operating assets d. Must have a higher asset utilization     B. A lower margin business must have                                         to be successful.    a. Lower asset utilization b. Medium asset utilization c. Higher asset utilization d. Low sales revenue relative to its operating assets

Which of the following transactions would not increase the fixed asset turnover ratio? Group of answer choices A)An increase in sales revenue. B)A profitable sale of fixed assets for cash. c)Selling manufacturing equipment for a loss. d)A decrease in operating expenses. E)All of the above would increase the fixed asset turnover ratio

Wouldn't it be beneficial for the company if both investment turnover and return on investment are used simultaneously since both tools can improve the decision-making of the management?