Question 1

If a firm has the option of investing in R&D,the cost of implementing the technology is the

Accepted Answer

The exercise price in an option context refers to the cost required to implement or exercise the option, which in this case is the cost of implementing the technology.

Question 2

Which of the following is an example of a distribution screening question for a new product?

Accepted Answer

This question asks about the distribution of the product, specifically where customers will buy it. This is important information for determining the best distribution channels and overall distribution strategy for the new product. The other options focus on different aspects of product development and market research, but do not directly address distribution.

Question 3

_____ refers to the allocation of a finite quantity of resources over different possible uses.

Accepted Answer

Capital rationing refers to the process of allocating a limited amount of capital among different investment opportunities. It involves prioritizing and choosing between competing projects based on the availability of funds. The goal is to optimize the use of available resources and achieve the highest possible return on investment.

Question 4

Using quantitative methods for choosing which R&D projects to pursue _____ in a rapidly changing environment.

Accepted Answer

While quantitative methods can provide valuable insights for R&D project selection, they may not account for the rapidly changing environment and may produce questionable or unreliable results. It is important to also consider qualitative factors and expert opinions in the decision-making process.

Question 5

Ditch Witch makes backhoes for digging ditches and trenches.Recently it began a project to develop an acid which when poured on the ground digs trenches of various depths depending on how much is applied.This would probably be considered a(n)_____ project for Ditch Witch.

Accepted Answer

A breakthrough project refers to an innovative project that introduces a new product, service or process that significantly improves a company's competitive position. Developing an acid that can dig trenches of various depths is a new and innovative product that could significantly improve Ditch Witch's competitive position in the market.

Question 6

When Susie calculated the Net Present Value (NPV)of a project,the value came out to be -$2,000,0000.If this is the only information she has,Susie should recommend

Accepted Answer

A negative NPV indicates that the project will result in a loss and therefore should be rejected. Recalculating with a higher or lower discount rate may change the NPV value but would not change the fact that the project is not profitable.

Question 7

Stan calculated that the net present value of his investment would be zero with a 15 percent internal rate of return.This means that

Accepted Answer

A net present value of zero with a 15 percent internal rate of return means that the project is expected to earn a return equal to the required rate of return. Therefore, comparing the 15 percent internal rate of return to the required rate of return can help determine if the project should be accepted. Option A is incorrect as a zero net present value does not necessarily mean that the project has no value. Option C is incorrect as there is no indication that the project requires an additional 15 percent investment. Option D is incorrect as the 15 percent internal rate of return is not related to the payback period of the project.

Question 8

Screening questions are used mainly to

Accepted Answer

Screening questions are used to structure the discussion of project ideas by focusing on key criteria such as feasibility, cost, and impact. They help identify which ideas are worth pursuing further and which ones should be discarded. They are not used to involve people in the decision, weed out illegal ideas, or choose consulting firms.

Question 9

Sheila Kessler is a retired millionaire who still likes to invest in new businesses and help other people get started in business.She would be called a(n)

Accepted Answer

Sheila Kessler is an angel investor, which refers to high net worth individuals who provide capital to start-up businesses or entrepreneurs in exchange for equity ownership in their company. This definition fits the description given in the question. The other options do not accurately describe her role as an investor.

Question 10

Discounted cash flow estimates are only accurate if

Accepted Answer

Discounted cash flow estimates rely heavily on the accuracy of the original profit estimates, as these projections form the basis for calculating future cash flows.

Question 11

Natal Technologies is developing a superior ultrasound machine for which it is required to invest $800,000.Based on the company's analysis,the product will generate $200,000 from the first year till perpetuity.According to this,the payback period is

Accepted Answer

Payback period = Investment/Annual cash inflow
Payback period = $800,000/$200,000 = 4 years.
Therefore, the best choice is D, as the payback period for the investment is 4 years.

Question 12

According to the Net Present Value (NPV)method of evaluation of projects,if there are cash outflows for multiple periods

Accepted Answer

According to the NPV method, all future cash flows (both inflows and outflows) need to be discounted back to the present period in order to evaluate a project. Therefore, if there are cash outflows for multiple periods, each cash outflow will have to be discounted back to the present period separately. Hence, the correct answer is D. Choices A and B are incorrect as they are not consistent with the NPV method. Choice C may or may not be true depending on the specific circumstances of the project, but it is not a necessary condition for evaluating cash outflows for multiple periods using the NPV method.

Question 13

Mountain Home University developed a better teaching evaluation mechanism to use in its courses.This would likely be considered a(n)_____ project.

Accepted Answer

A derivative project involves improvements or enhancements to existing products or processes, such as developing a better teaching evaluation mechanism.

Question 14

The registrar's office at Mountain Home University plans to develop a computer software to allow both telephone and online course registration instead of in-person processing.Although this does not affect other departments directly,it is the next generation product for registration that would enable numerous other enhancements to be developed.This would likely be considered a(n)____ project.

Accepted Answer

This project is considered a platform project because it serves as a foundation for future enhancements and developments in the registration process.

Question 15

Venture capitalists are most likely to provide funding

Accepted Answer

Venture capitalists typically provide funding after a new business has already begun operations rather than before it begins. This allows them to assess the viability of the business and potential for growth before making an investment. Additionally, venture capitalists are usually seeking a high return on investment, so a small return on investment projection would be less appealing to them. The involvement of foreign companies may or may not be a factor in their decision to provide funding.

Question 16

Ditch Witch decided to put all its efforts into breakthrough projects to be on the leading edge of technology.This could result in

Accepted Answer

The answer of Ditch Witch decided to put all its...

Question 17

Using the real options approach,if the cost of future investments to capitalize on the R&D program is less than the returns from this investment,then

Accepted Answer

According to the real options approach, the potential returns from an R&D program should be evaluated based on the expected future cash flows. If the cost of future investments is less than the expected returns, it indicates that there is a positive net present value (NPV) for the project. Therefore, the program should be pursued as the potential return is greater than the cost of investment.

Question 18

In trying to decide on whether or not to invest in a new project,the CEO of Foxeye Limited said she wanted to consider how long it takes to recover the investment,the risk,and the time value of money.It sounds like she should use

Accepted Answer

The CEO's concerns regarding the time value of money and investment recovery indicate that a discounted cash flow method would be most appropriate. This method takes into consideration the future cash inflows and outflows associated with a project and discounts them back to their present values, thus allowing for an assessment of the project's net present value and potential return on investment. Real options, portfolio analysis, and Q-sort may also be useful tools in investment decision-making, but they do not specifically address the CEO's stated concerns.

Question 19

When Ralph Ketner wanted to start the Food Lion grocery store business,he and his brother called 100 friends to each invest $1,000 in his business.This source had to be used probably because

Accepted Answer

As a new business, the risk was high and it could be difficult to secure financing from traditional sources such as banks. Therefore, Ketner relied on personal connections and their investments to fund his startup venture.

Question 20

Which of the following is analogous to the exercise price of stock options?

Accepted Answer

The exercise price of stock options is the price at which the option holder can purchase the stock. Similarly, the cost of future investment required to capitalize on the R&D program represents the additional investment needed to realize the benefits of the R&D, akin to the exercise price needed to realize the value of the option.

Quiz 7: Choosing Innovation Projects