If you assume that individuals who are experienced in launching a new product know the best marketing approach, which conceptual block are you practicing?
A) Vertical thinking
B) Stereotyping
C) Compression
D) Ignoring commonalities
Answer: B
Explanation: A) Incorrect. Vertical thinking refers to defining a problem a single way and then pursuing that definition without deviation. Here, the problem is that you are assuming that others' past experience launching a product means that they have the best solution for a new marketing problem. This assumes that the current problem is a variation on the past problems and is the conceptual block of stereotyping.
B) Correct. You are assuming that others' past experience launching a product means that they have the best solution for a new marketing problem. This assumes that the current problem is a variation on the past problems and is the conceptual block of stereotyping.
C) Incorrect. Compression occurs when an individual looks at a problem too narrowly or too broadly. Here, the problem is that you are assuming that others' past experience launching a product means that they have the best solution for a new marketing problem. This assumes that the current problem is a variation on the past problems and is the conceptual block of stereotyping.
D) Incorrect. Ignoring commonalities is a form of the commitment block in which individuals fail to identify similarities among seemingly disparate pieces of data. Here, the problem is that you are assuming that others' past experience launching a product means that they have the best solution for a new marketing problem. This assumes that the current problem is a variation on the past problems and is the conceptual block of stereotyping.
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Based on the Modigliani and Miller (MM) propositions with corporate taxes, Aquarius’s WACC is closest to:
Lindsay White, CFA, is an analyst with a firm in London, England. She is responsible for covering five companies in the Consumer Staples industry. White believes the domestic and global economies will grow slightly below average over the next two years, but she is also concerned about the possibility of a mild recession taking hold. She has been asked to review the companies that she covers and has collected information about them, presented in Exhibit C. White has estimated that earnings before interest and taxes (EBIT) will remain constant for all five companies for the foreseeable future. Currency is in terms of the British pound (d). The marginal corporate tax rate is 30 percent for all five companies. EXHIBIT C Selected Company Financial Data Aquarius Bema Garth Holte Vega EBIT (d) 600,000 600,000 400,000 400,000 400,000 Debt-to-equity ratio (market value) 0.60 0.00 0.00 0.71 0.62 Debt (market value) (d) 2,000,000 0 0 2,000,000 2,000,000 S&P debt rating Aþ n.a. n.a. A– A Weighted average cost of capital – 10% 10% – – Based on conversations with management of the five companies, as well as on her own independent research and analysis, White notes the following: Aquarius: Has lower bonding costs than does Bema. Has a higher percentage of tangible assets to total assets than does Bema. Has a higher degree of operating leverage than does Bema. Garth: Invests significantly less in Research and Development than does Holte. Has a more highly developed corporate governance system than does Holte. Has more business risk than does Holte. In addition, White has reached various conclusions regarding announcements by Bema, Garth, and Vega: Announcement: Bema has announced that it will issue debt and use the proceeds to repurchase shares. As a result of this debt-financed share repurchase program, Bema indicates that its debt/equity ratio will increase to 0.6 and its before-tax cost of debt will be 6 percent. Conclusion: As result of the announced program, Bema’s total market value should decrease relative to Aquarius’s. Announcement: Garth has announced that it plans to abandon the prior policy of allequity financing by the issuance of d1 million in debt in order to buy back an equivalent amount of equity. Garth’s before-tax cost of debt is 6 percent. Conclusion: This change in capital structure is reasonable, but Garth should take care subsequently to maintain a lower D/E ratio than Holte. Announcement: Vega has announced that it intends to raise capital next year, but is unsure of the appropriate method of raising capital. Conclusion: White has concluded that Vega should apply the pecking order theory to determine the appropriate method of raising capital A. 3.38%. B. 7.87%. C. 11.25%.
Return on marketing investment refers to the net return from a marketing investment divided by the costs of the marketing investment
Indicate whether the statement is true or false