Question #6
Reading: Reading 19 Equity Valuation - Applications and Processes
PDF File: Reading 19 Equity Valuation - Applications and Processes.pdf
Page: 4
Status: Incorrect
Correct Answer: C
Your Answer: B
Part of Context Group: Q6-7
First in Group
Shared Context
Question
In the Toys to You Inc. (TTY) discussion in Article Two, which of the following would be the most appropriate conclusion for the writer to add?
Answer Choices:
A. TTY is attempting a strategy of product differentiation by committing to high quality products but appears to be failing as revenues are lower than its competitors
B. TTY is attempting a strategy of cost leadership by keeping prices equal to or lower than its competitors but appears to be failing as margins are lower than its competitor’s
C. TTY is attempting a strategy of cost leadership by producing with the lowest cost base but appears to be failing as margins are lower than its competitor’s
Explanation
Product differentiation involves adding product features or services that increase the
attractiveness of the firm's product. There is no suggestion that TTY is attempting to do
this.
Cost leadership is a bid to produce at the lowest cost, a strategy that is evident from the
chairperson's statement. However, it has resulted in a margin of only 13.9% compared to
the competitor's 15.4%.