Real options logic is useful when corporations consider stock options as a way to finance entrepreneurial ventures.

31.

Real options logic is useful when corporations consider stock options as a way to finance entrepreneurial ventures.    FALSE Real options logic is applied in situations where decisions are made to invest in new ventures or other business activities. Many strategic decisions have the characteristic of containing a series of options. The phenomenon is called embedded options, a series of investments in which at each stage of the investment there is a go or no-go decision.

AACSB: Analytic Blooms: Understand Learning Objective: 12-05 The benefits and potential drawbacks of real options analysis in making resource deployment decisions in corporate entrepreneurship contexts. Level of Difficulty: 2 Medium Topic: Real Options Analysis: A Useful Tool

32.

Corporate ventures that use real options logic in decision making tend to keep total investment low in order to minimize the downside risk of a project.    TRUE The real options logic process of evaluating ideas, separates winning ideas from losing ones in a way that keeps investments low. Using real options logic to advance the development process is a key way that firms reduce uncertainty and minimize innovation-related failures.

AACSB: Analytic Blooms: Understand Learning Objective: 12-05 The benefits and potential drawbacks of real options analysis in making resource deployment decisions in corporate entrepreneurship contexts. Level of Difficulty: 2 Medium Topic: Real Options Analysis: A Useful Tool

33.

Real options analysis helps managers make investment decisions involving large irreversible commitments of financial resources.    FALSE ROA is appropriate to use when investments can be staged whereby a smaller investment up front can be followed by subsequent investments. Real options can be applied to an investment decision that gives the company the right, but not the obligation, to make follow-on investments.

AACSB: Analytic Blooms: Understand Learning Objective: 12-05 The benefits and potential drawbacks of real options analysis in making resource deployment decisions in corporate entrepreneurship contexts. Level of Difficulty: 2 Medium Topic: Real Options Analysis: A Useful Tool

34.

One of the potential pitfalls of real options analysis is that managers may have the incentive and know-how to game the system.    TRUE Managers using ROA may have an incentive and the know-how to game the system. If managers know that a certain option value must be met in order for the proposal to get approved, they can back-solve the model to find a variance estimate needed to arrive at the answer that upper management desires.

AACSB: Analytic Blooms: Understand Learning Objective: 12-05 The benefits and potential drawbacks of real options analysis in making resource deployment decisions in corporate entrepreneurship contexts. Level of Difficulty: 2 Medium Topic: Real Options Analysis: A Useful Tool

35.

The term skunkworks is used to refer to a type of in-house facility that corporations use to develop entrepreneurial ideas.    FALSE Skunk works are independent work units, often physically separate from corporate headquarters. They allow employees to get out from under the pressures of their daily routines to engage in creative problem solving.

AACSB: Analytic Blooms: Remember Learning Objective: 12-06 How an entrepreneurial orientation can enhance a firm's efforts to develop promising corporate venture initiatives. Level of Difficulty: 1 Easy Topic: Entrepreneurial Orientation

36.

First movers in an industry often capture above-average profits, but usually find it difficult to maintain early market share gains.    FALSE First movers have several advantages. They often capture unusually high profits, because there are no competitors to drive prices down. First movers that establish brand recognition are usually able to retain their image and hold on to the market share gained by being first. Generally, first movers have an advantage that can be sustained until the maturity phase of the industry life cycle.

AACSB: Analytic Blooms: Understand Learning Objective: 12-06 How an entrepreneurial orientation can enhance a firm's efforts to develop promising corporate venture initiatives. Level of Difficulty: 2 Medium Topic: Entrepreneurial Orientation

37.

Competitive aggressiveness is a response to threats whereas proactiveness is a response to opportunities.    TRUE Proactiveness is a response to opportunities, the O in SWOT. Competitive aggressiveness, by contrast, is a response to threats, the T in SWOT. A competitively aggressive posture is important for firms that seek to enter new markets in the face of intense rivalry.

AACSB: Analytic Blooms: Understand Learning Objective: 12-06 How an entrepreneurial orientation can enhance a firm's efforts to develop promising corporate venture initiatives. Level of Difficulty: 2 Medium Topic: Entrepreneurial Orientation

38.

Business risk taking refers to the risk associated with entering untested markets or committing to unproven technologies.    TRUE Business risk taking involves venturing into the unknown without knowing the probability of success. This is the risk associated with entering untested markets or committing to unproven technologies.

AACSB: Analytic Blooms: Remember Learning Objective: 12-06 How an entrepreneurial orientation can enhance a firm's efforts to develop promising corporate venture initiatives. Level of Difficulty: 1 Easy Topic: Entrepreneurial Orientation

39.

Financial risk taking involves the risk an executive assumes in taking a stand in favor of a strategic course of action.    FALSE Personal risk taking refers to the risks that an executive assumes in taking a stand in favor of a strategic course of action. Executives who take such risks stand to influence the course of their whole company, and their decisions also can have significant implications for their careers.

AACSB: Analytic Blooms: Remember Learning Objective: 12-06 How an entrepreneurial orientation can enhance a firm's efforts to develop promising corporate venture initiatives. Level of Difficulty: 1 Easy Topic: Entrepreneurial Orientation

40.

Risk taking can lead to competitive advantage, but it needs to be managed carefully.    TRUE Risk taking, by its nature, involves potential dangers and pitfalls. Only carefully managed risk is likely to lead to competitive advantages. Actions that are taken without sufficient forethought, research, and planning may prove to be very costly. Therefore, strategic managers must always remain mindful of potential risks.

AACSB: Analytic Blooms: Understand Learning Objective: 12-06 How an entrepreneurial orientation can enhance a firm's efforts to develop promising corporate venture initiatives. Level of Difficulty: 2 Medium Topic: Entrepreneurial Orientation

41.

According to Peter Drucker, successful entrepreneurs typically are risk takers.    FALSE In his book Innovation and Entrepreneurship, Peter Drucker argued that successful entrepreneurs are typically not risk takers. Instead, they take steps to minimize risks by carefully understanding them. This is how they avoid focusing on risk and remain focused on opportunity.

AACSB: Analytic Blooms: Understand Learning Objective: 12-06 How an entrepreneurial orientation can enhance a firm's efforts to develop promising corporate venture initiatives. Level of Difficulty: 2 Medium Topic: Entrepreneurial Orientation