Question: The resource-based view of the firm

> ‘‘When the forward rate volatility,
, in HJM is
, the Hull–White model results.’’ Verify that this is true by showing that HJM gives a process for bond prices that is consistent with the Hull–White model in Chapter 32.

> ‘‘When the forward rate volatility
in HJM is constant, the Ho–Lee model results.’’ Verify that this is true by showing that HJM gives a process for bond prices that is consistent with the Ho–Lee model in Chapter 32.

> ‘‘An option adjusted spread is analogous to the yield on a bond.’’ Explain this statement.

> Suppose a = 0:05,
, and the term structure is flat at 10%. Construct a trinomial tree for the Hull–White model where there are two-time steps, each 1 year in length.

> Suppose that a = 0:05 and
in the Hull–White model with the initial term structure being flat at 6% with semiannual compounding. Calculate the price of a2.1-year European call option on a bond that will mature in 3 years. Suppose that the bond pays a cou

> Suppose that a =0:05, b =0:08, and
in Vasicek’s model with the initial shortterm interest rate being 6%. Calculate the price of a 2.1-year European call option on a bond that will mature in 3 years. Suppose that the bond pays a coupon of 5% semiannually

> Repeat Problem 32.3 valuing a European put option with a strike of $87. What is the put–call parity relationship between the prices of European call and put options? Show that the put and call option prices satisfy putâ€&#147

> Calculate the price of an 18-month zero-coupon bond from the tree in Figure 32.8 and verify that it agrees with the initial term structure. Figure 32.8 Tree for lognormal model. Node: A в с B E н D F H I -3.373 -2.875 -3.181 -3.487 -2.430 -2.736 -3.

> Calculate the price of a 2-year zero-coupon bond from the tree in Figure 32.7 and verify that it agrees with the initial term structure. Figure 32.7 Tree for R in Hull-White model (the second stage). H A Node: A B D E F G H I R (%) 3.824 6.937 5.205

> Consider an instrument that will pay off S dollars in 2 years, where S is the value of the Nikkei index. The index is currently 20,000. The yen/dollar exchange rate is 100 (yen per dollar). The correlation between the exchange rate and the index is 0.3 a

> Explain the exponentially weighted moving average (EWMA) model for estimating volatility from historical data.

> Agriculture is one of the largest and oldest industries in the world. In the United States and many other countries, farmers often struggle to turn a profit given the variances of weather and commodity prices. Some working farms are turning to tourism as

> Your group works for Warner Music Group (www .wmg.com), a large music record label whose sales are declining largely due to digital piracy. Your supervisor assigns you the task of developing a strategy for improving this situation. 1. What are the key

> Ryanair based in Dublin, Ireland, has been renowned in Europe as a firm that can make a profit on a $20 ticket by imposing numerous fees and surcharges. The airline has sought to be the lowest of the low-cost providers in the EU with a “no frills get you

> In the discussion about Merck (Strategy Highlight 2.1), it is clear the firm has followed a socially responsible path by donating more than 1 billion drug treatments to remedy river blindness in remote African communities. Yet Merck must also meet shareh

> The MBA oath (shown in Exhibit 12.4) says in part, “My decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow.” One example of a large firm reorienting toward this approach is PepsiCo. In the last few years, P

> As noted in the chapter, the average compensation for a CEO of a Fortune 500 company was $14 million, and CEO pay was 300 times the average worker pay. This contrasts with historic values of between 25 and 40 times the average pay. In August 2015 the U.S

> Assume you work in the accounting department of a large software company. Toward the end of December, your supervisor tells you to change the dates on several executive stock option grants from March 15 to July 30. Why would she ask for this change? What

> A “race-to-the-bottom” process may set in as MNEs search for ever-lower-cost locations. Discuss the trade-offs between the positive effects of raising the standard of living in some of the world’s poorest countries with the drawbacks of moving jobs estab

> Alliances and acquisitions can sometimes lead to less access or higher prices for consumers. Comcast bought NBC Universal (from GE). When one content provider and the Internet access provider are the same, will this lead to some content being favored ove

> If mergers and acquisitions quite often end up providing a competitive disadvantage, why do so many of them take place? Given the poor track record, is the continuing M&A activity a result of principal– agent problems and managerial hubris? What can be d

> The chapter notes that some firms choose to outsource their human resource management systems. If a firm has a core value of respecting its employees and rewarding top performance with training, raises, and promotions, does outsourcing HR management show

> What is a strategic group? How can studying such groups be useful in industry analysis?

> GE’s development of the Vscan provides many benefits as a lower-cost and portable ultrasound device (see Strategy Highlight 7.2). Cardiologists, obstetricians, and veterinarians will be able to use the device in rural areas and developing countries. One

> You are a co-founder of a start-up firm making electronic sensors. After a year of sales, your business is not growing rapidly, but you have some steady customers keeping the business afloat. A major supplier has informed you it can no longer supply your

> In the chapter discussion on value innovation, IKEA is noted as a firm that has successfully applied these techniques. What roles, if any, do sustainability and triple-bottom-line factors have in the success of IKEA as a leader in the furniture industry?

> Suppose Procter & Gamble (P&G) learns that a relatively new start-up company Method (www .methodhome.com) is gaining market share with a new laundry detergent in West Coast markets. In response, P&G lowers the price of its Tide detergent from $18 to $9 f

> How do the perspectives on competitive advantage differ when comparing brick-and-mortar stores to online businesses (e.g., Best Buy vs. Amazon, Barnes & Noble vs. Amazon, The Gap vs. Thread less (noted in Strategy Highlight 1.1), Nordstrom vs. Zappos, an

> The chapter mentions that accounting data do not consider off–balance sheet items. A retailer that owns its stores will list the value of that property as an asset, for example, while a firm that leases its stores will not. What are some of the accountin

> You work as a supervisor in a manufacturing firm. The company has implemented a balanced scorecard performance-appraisal system and a financial bonus for exceeding goals. A major customer order for 1,000 units needs to ship to a destination across the co

> The chapter mentions that one type of resource flow is the loss of key personnel who move to another firm. Assume that the human resources department of your firm has started running ads and billboards for open positions near the office of your top compe

> The chapter notes the U.S. federal government has provided incentives for consumers to purchase electric vehicles (EVs). Some state governments are also providing additional purchase incentives. However, other countries are also encouraging the purchase

> UBS, a venerable Swiss banking institution with global business activities, experienced the significant implications that political factors can have on the bottom line. The U.S. government alleged that by advertising its “tax savings” advantages to U.S.

> How do the five competitive forces in Porter’s model affect the average profitability of the industry? For example, in what way might weak forces increase industry profits, and in what way do strong forces reduce industry profits? Identify an industry in

> The list below shows a sample of various vision/ mission statements. Match the company with their statements. Also, identify whether the statements are principally customer-oriented or product-oriented. Type of Matched Vision/Mission Statement Statem

> Corporate leaders are responsible for setting the firm’s strategies to gain and sustain a competitive advantage. Should managers be concerned only about the company’s financial performance? What responsibility do company managers have for other consequen

> The chapter highlights several firms that are developing business models around a “sharing economy.” The idea being that assets not currently in use by their owners (cars, car seats, homes, rooms, etc.) can be rented to (shared with) others. What other i

> Interface, Inc., is discussed in Strategy Highlight 5.1. It may seem unusual for a business-to-business carpet company to be using a triple-bottom-line approach for its strategy. What other industries do you think could productively use this approach?

> For many people, the shareholder perspective is perhaps the most familiar measure of competitive advantage for publicly traded firms. What are some of the disadvantages of using shareholder value as the sole point of view for defining competitive advanta

> Domino’s Pizza has been in business over 50 years and claimed to be “#1 Worldwide in Pizza Delivery” in 2013. Visit the company’s business-related website (www.dominosbiz.com) and read the company profile under the “Investors” tab. Does the firm focus on

> Much has been said about competitive advantage gained from innovations such as the Internet, high-technology gadgets, and apps. The chapter points out, however, that low-technology innovations such as the razor–razorblade business model can also create v

> The chapter discussed the Internet as a disruptive innovation that has facilitated online retailing. It also, however, has presented challenges to brick and- mortar retailers. How might retailers such as Nordstrom, Neiman Marcus, or Macy’s need to change

> Describe a firm you think has been highly innovative. Which of the four types of innovation—radical, incremental, disruptive, or architectural—did it use? Did the firm use different types over time?

> Select an industry and consider how the industry life cycle has affected business strategy forthe firms in that industry over time. Detail your answer based on each stage: introduction, growth, shakeout, maturity, and decline.

> How do mobility barriers affect the structure of an industry? How do they help us explain firm differences in performance?

> As noted in the chapter, research found that firm effects are more important than industry effects. What does this mean? Can you think of situations where this might not be true? Explain.

> BP’s experience in the Gulf of Mexico has made it the poster company for how not to manage stakeholder relationships effectively (see Strategy Highlight 1.2). What advice would you give to BP’s managers to help them continue to rebuild stakeholder relati

> The Business Roundtable has recommended that the CEO should not also serve as the chairman of the board. Discuss the disadvantages for building a sustainable competitive advantage if the two positions are held by one person. What are the disadvantages fo

> How can a top management team lower the chances that key managers will pursue their own self-interests at the expense of stockholders? At the expense of the employees? At the expense of other key stakeholders?

> Why is it important to study the internal resources, capabilities, and activities of firms? What insights can be gained?

> Professor Pankaj Ghemawat delivered a TED talk titled “Actually, the World Isn’t Flat.” Do you agree with his assessment that the world is at most semi-globalized, and that we need to be careful not to fall victim to “globalony”? View the talk at: www.te

> Multinational enterprises (MNEs) have an impact far beyond their firm boundaries. Assume you are working for a small firm that supplies a product or service to an MNE. How might your relationship change as the MNE moves from Globalization 2.0 to Globaliz

> The chapter notes there are key differences between economies of scale and learning effects. Let us put that into practice with a brief example. A company such as Intel has a complex design and manufacturing process. For instance, one fabrication line fo

> In Chapter 4, we discussed the internal value chain activities a firm can perform in its business model (see Exhibit 4.8). Data from Exhibit 4.8: The value chain priorities can be quite different for firms taking different business strategies. Create

> As presented in the chapter, firm-level decisions have a significant impact on the success or failure of organizations. Industry-level effects, however, can also play an important role (see Exhibit 1.1). Exhibit 1.1: -/ Many considerations go into dec

> How can a firm attempting to have a blue ocean business-level strategy manage to avoid being “stuck in the middle”?

> What are some drawbacks and risks to a broad generic business strategy? To a focused strategy?

> Franchising is widely used in the casual dining and fast food industry, yet Starbucks is quite successful with a large number of company-owned stores. In 2014 Starbucks had over 7,000 company owned stores in the United States. How do you explain this dif

> How can related diversification create a competitive advantage for the firm? Keeping the advantages of related diversification in mind, think back to theexample of Delta’s vertical integration decision to acquire an oil refinery—clearly an unrelated dive

> When Walmart decided to incorporate grocery stores into some locations and created “supercenters, “was this a business-level strategy of differentiation or a corporate strategy of diversification? Why? Explain your answer.

> Alliances are often used to pursue business-level goals, but they may be managed at the corporate level. Explain why this portfolio approach to alliance management would make sense.

> An alliance’s purpose can affect which governance structure is optimal. Compare a pharmaceutical R&D alliance with a prescription-drug marketing agreement, and recommend a governing mechanism for each. Provide reasons for your selections.

> Alliances are often used to pursue business-level goals, but they may be managed at the corporate level. Explain why this portfolio approach to alliance management would make sense.

> An alliance’s purpose can affect which governance structure is optimal. Compare a pharmaceutical R&D alliance with a prescription-drug marketing agreement, and recommend a governing mechanism for each. Provide reasons for your selections.

> The chapter identifies three governing mechanisms for strategic alliances: non-equity, equity, and joint venture. List the benefits and downsides for each of these mechanisms.

> Generation Y (born between 1980 and 2001) is entering the work force and advancing their careers now, as the baby boomers begin to retire in large numbers. Given the smaller size of Gen Y compared to the baby boomers, this generation received much more i

> Why is it important for any organization (firms, nonprofits, etc.) to study and understand its external environment?

> Identify an industry that is undergoing intense competition or is being featured in the business press. Discuss how scenario planning might be used by companies to prepare for future events. Can some industries benefit more than others from this type of

> This chapter introduces three different levels appropriate for strategic considerations (see Exhibit 2.5). Data from exhibit 2.5: In what situations would some of these levels be more important than others? For example, what issues might be considered

> In what situations is top-down planning likely to be superior to bottom-up emergent strategy development?

> What characteristics does an effective mission statement have?

> One industry with an impact on both undergraduate and MBA students is textbook publishing. On the one hand, traditional printed textbooks are being challenged by self-publishing firms offering very low prices for specific instructor materials, and on the

> It is not unusual for even large corporate boards to have no women or minorities on them. In the United States, women held 19 percent of board seats at Fortune 500 companies in 2012. In her book, Lean In, Sheryl Sandberg points out that this number has b

> 1. The table that follows includes a list of prominent firms. Select one of the five categories of generic business-level strategies—broad cost leadership, focused cost leadership, broad differentiation, focused differentiation, and val

> As discussed in the chapter, a balanced scorecard views the performance of an organization through four lenses: customer, innovation and learning, internal business, and financial. According to surveys from Bain & Company (a consulting firm), in recent y

> While Uber is a highly valued “unicorn,” with a seemingly high disregard for regulations and other external factors that would slow its growth, other competing firms are taking a somewhat different route to the ride-hailing marketplace. For example, Lyft

> The outsourcing of IT programming jobs to India is now commonly understood after years of this trend. However, more recently some accounting functions have also begun to flow into India’s large technically trained and English-speaking work force. For exa

> Why may corporate managers not specifically aim at profit (or wealth) maximization for their companies?

> Discuss the meaning of the term principal-agent problem. Why does this problem exist?

> Discuss the difference between the calculation of shareholder wealth and the concept of Market Value Added. Which of the two would appear to be more meaningful from the viewpoint of a shareholder?

> Explain the term satisfice as it relates to the operations of a large corporation.

> Discuss the difference between profit maximization and shareholder wealth maximization. Which of these is a more comprehensive statement of a company’s economic objectives?

> The outsourcing of important parts of a company’s production has been growing in recent years. How would you explain these changes? How has the Internet contributed to these changes?

> What are transaction costs? How does opportunistic behavior tend to increase transaction costs?

> Do you believe that the profit maximization model can be applied to the activities of a multinational corporation? Explain.

> Is the maximization of profit margin (profit as a percentage of total sales) a valid financial objective of a corporation? Discuss.

> You have a choice of opening your own business or being employed by someone else in a similar type of business. What are some of the considerations in terms of opportunity costs that you would have to include in arriving at your decision?

> Suppose a firm has the following demand equation: Q = 1,000 - 3,000P + 10A where Q = quantity demanded P = product price (in dollars) A = advertising expenditure (in dollars) Assume for the following questions that P = $3 and A = $2,000. a. Suppose the f

> The following is a quote from a New York Times article: “If a company makes product donations to the school—computers for instance—then the image of a company goes up as graduate students use the company’s products.” Does such action square with a compan

> Because of inflation, a company must replace one of its (fully depreciated) machines at twice the nominal price paid for a similar machine 8 years ago. Based on present accounting rules, will the company have covered the entire cost of the new machine th

> (Optional) Have you been personally involved in the making of a decision for a business concerning what, how, or for whom? If so, explain your rationale for making such decisions. Were these decisions guided by the market process, the command process, or

> What do you think is the key to success in the soft drink industry? What chance do you think Global Foods has in succeeding in its new venture into the soft drink market? Explain. (Answer these questions on the basis of the information provided in the ch

> Compare and contrast microeconomics with macroeconomics. Although managerial economics is based primarily on microeconomics, explain why it is also important for managers to understand macroeconomics.

> Explain the differences between management skills and entrepreneurship. Discuss how each factor contributes to the economic success of a business.

> Discuss the importance of the command process and the traditional process in the making of management decisions. Illustrate specific ways in which managers must take these two processes into account.

> Define the market process, the command process, and the traditional process. How does each process deal with the basic questions of what, how, and for whom?

> “The growth of consumer information organizations, legal requirements, and warranty requirements has caused significant increases in the cost of customer satisfaction. Thus it is no longer useful to talk about profit maximization as a company objective.”

> Elaborate on the basic economic questions of what, how, and for whom. Provide specific examples of these questions with respect to the use of a country’s scarce resources.

> Over the years, the market demand for “long-playing records made of polyvinyl has fallen considerably as new technologies replaced the old “LP.” Yet, LPs are still available for sale and they sell at price points higher (in some cases much higher) than C

> Define scarcity and opportunity cost. What role do these two concepts play in the making of management decisions?