MGMT411_CH8

A board of directors typically consists of A) 10 to 15 individuals drawn from a firm's top management group and from individuals outside the firm. B) 10 to 15 individuals drawn exclusively from a firm's top management group. C) 10 to 15 individuals drawn exclusively from individuals outside the firm. D) 10 to 15 individuals drawn from all stakeholder groups associated with the firm.

A

Grace McKenna is best described as a(n) ________ in SpandoCorp. A) senior executive B) corporate staff member C) division general manager D) institutional investor

A

If SpandoCorp decides to use the method of allocating capital where each project receives funding on its merit and not because it received funding the previous year, it is using A) zero-based budgeting. B) corporate budgeting. C) centralized budgeting D) coordinated budgeting.

A

If SpandoCorp used a ________ budgeting process, it would assume that no project would receive funding for the future simply because it was funded in the past and would require each project to stand on its own merits each year to be included in a list of important projects that the firm can afford to fund. A) zero-based B) cost plus C) dynamic D) traditional

A

In 1970, institutions owned ________ percent of the equity traded in the United States and by 2005 they owned ________ percent of the equity traded in the United States. A) 32; 59 B) 62; 32 C) 48; 62 D) 32; 38

A

Most accounting measures of divisional performance have a common limitation in that they A) have a short-term bias. B) are costly to implement. C) are difficult to interpret. D) have a long-term bias.

A

The ________ is the subcommittee of the board of directors that is responsible for ensuring the accuracy of accounting and financial statements. A) audit committee B) finance committee C) nominating committee D) personnel and compensation committee

A

The divisions of an M-form organization are true A) profit-and-loss centers. B) functional units. C) matrix teams. D) organic structures.

A

The primary responsibility of the ________ is to provide information about the firm's external and internal environments to the firm's senior executive. A) corporate staff B) board of directors C) division general managers D) shared activity managers

A

Two common agency problems include A) managers investing some of a firm's capital in managerial perquisites that do not add economic value to a firm and managerial risk aversion. B) managers not investing enough of a firm's capital in managerial perquisites and managerial risk aversion. C) managers investing some of a firm's capital in managerial perquisites that do not add economic value to a firm and managerial risk seeking. D) managers not investing enough of a firm's capital in managerial perquisites and managerial risk seeking.

A

When the cost of services from a shared activity is ________ the cost of comparable services provided by a division itself or by an outside supplier than the division, general managers have a strong incentive ________. A) less than; to use the services of shared activities B) greater than; to use the services of shared activities C) less than; to use the services of an outside supplier D) equal to; to use the services of an outside supplier

A

If Todd Hienz were the chief operating officer for SpandoCorp, his responsibilities would include A) supervision of the board of directors in its monitoring role. B) strategy implementation. C) strategy formulation. D) strategy control.

B

If a division of a multidivisional firm has adjusted accounting earnings of $10 million, a weighted average cost of capital of 10% and a total capital employed by the division of $50 million, the division has an EVA of A) $25 million. B) $5 million. C) $15 million. D) $20 million.

B

If the bulk materials division of SpandoCorp sold its reams of Spandex to the military division and set the transfer price of these reams equal to the bulk materials actual cost of production, SpandoCorp would be using the ________ transfer pricing scheme. A) exchange autonomy B) mandated full cost C) mandated market based D) dual pricing

B

In a multidivisional structure, each business that the firm engages in is managed through a A) product line. B) division. C) geographic unit. D) function.

B

In an agency relationship, the party that delegates decision-making authority to another individual is known as the A) stakeholder. B) principal. C) agent. D) stockholder.

B

Rather than having profit-and-loss responsibilities, ________ are assigned a budget and manage their operations to that budget. A) profit centers B) cost centers C) operation centers D) functional centers

B

Supervision of the board of directors in its monitoring role is the responsibility of A) the CEO. B) the chairman of the board. C) the chief operating officer. D) the president.

B

The divided loyalties that divisional staff managers have between corporate staff managers and functional managers are potentially the most problematic in ________ staff functions. A) marketing B) accounting C) logistics D) production

B

Transfer pricing should equal A) selling price. B) opportunity cost. C) total cost. D) marginal cost.

B

Wells Tucker's position in SpandoCorp is best described as A) a division general manager. B) a member of the corporate staff. C) the senior executive. D) a member of the board of directors.

B

Which of the following statements regarding CEO compensation is accurate? A) Differences in CEO cash compensation are very responsive to differences in firm performance. B) If a substantial percentage of a CEO's compensation comes in the form of stock and stock options in the firm, changes in compensation are closely linked with changes in firm performance. C) If a substantial percentage of a CEO's compensation comes in the form of stock and stock options in the firm, changes in compensation are not closely linked with changes in firm performance. D) If a substantial percentage of a CEO's compensation comes in the form of salary, changes in compensation can be expected to be closely linked with changes in firm performance.

B

A business unit within a diversified firm may be sold to the public through a(n) A) corporate spin-off. B) liquidation. C) IPO. D) harvest strategy.

C

If SpandoCorp wanted to measure the performance of its divisions with a method that would minimize any potential short-term bias, it should use a(n) A) hurdle rate based measure of divisional performance. B) divisional budget based measure of performance. C) economic value added measure of divisional performance. D) measure of performance based on the average level of profitability of firms in a division's industry.

C

In 2005, what percentage of the equity traded in the United States was owned by institutional investors? A) 20% B) 38% C) 59% D) 69%

C

In ________ budgeting, corporate executives create a list of all capital allocation requests from divisions in a firm, rank them from "most important" to "least important" and then fund all the projects a firm can afford, given the amount of capital that is available and no project receives funding simply because it was funded in the past. A) cost-plus B) activity-based C) zero-based D) revenue-based

C

In an M-form organization, the management of day-to-day operations is delegated to A) divisional general managers and corporate staff managers. B) corporate staff managers and functional managers who report to corporate staff managers. C) divisional general managers and functional managers who report to division general managers. D) the board of directors and corporate staff managers who report to the board of directors.

C

In examining the question of whether the roles of CEO and chairman should be combined, empirical research on this question suggests A) that combining these roles is always positively related with firm performance. B) that separating these roles is always positively related with firm performance. C) that combining these roles is positively correlated with firm performance when the firm operates in slow-growth and simple competitive environments. D) that separating these roles is positively correlated with firm performance when the firm operates in slow-growth and simple competitive environments.

C

The most common organizational structure for implementing a corporate diversification strategy is the ________ structure. A) matrix B) U-form C) M-form D) functional

C

The senior executive (the president or CEO) in an M-form organization has two responsibilities: A) budgeting and accounting. B) budgeting and mission setting. C) strategy formulation and strategy implementation. D) strategy formulation and budgeting.

C

Under which transfer pricing scheme is the transfer price set equal to the selling division's actual cost of production or set equal to the cost of production if the selling division were operating at maximum efficiency? A) exchange autonomy B) mandated full cost C) mandated market based D) dual pricing

C

Which component of the M-form structure evaluates the firm's decision making to ensure that it is consistent with the interests of equity holders? A) senior executives B) corporate staff C) board of directors D) division general managers

C

Which organizational structure is SpandoCorp using? A) U-form B) matrix C) M-form D) functional

C

Which role in the office of the president is responsible for strategy implementation? A) chairman of the board B) chief executive officer C) chief operating officer D) chief strategist

C

________ is an economic measure of divisional performance. A) Return on assets B) Return on a division's sales C) Economic value added D) A division's growth rate

C

A(n) ________ occurs when a large, typically diversified firm divests itself of a business in which it has historically been operating and the divested business operates as an independent unit. A) harvest B) liquidation C) initial public offering D) corporate spin-off

D

If SpandoCorp's board of directors wanted to ensure that changes in the CEO's compensation would be closely linked to changes in the firm's performance, it should A) use a compensation package that includes only a salary for the CEO. B) use a compensation package that includes a salary and a cash bonus for the CEO. C) use a compensation package the includes a salary, a cash bonus and stock options that represent only a relatively small percentage of the CEO's total compensation package. D) use a compensation package that includes a salary and stock options that represent a relatively substantial percentage of the CEO's total compensation package.

D

In a multidivisional company, one division "sells" its products or services to a second division for a(n) ________, which is set by a firm's corporate management to accomplish corporate objectives. A) allocation price B) transfer cost C) market price D) transfer price

D

Kelly Rae's position is SpandoCorp is best described as a(n) A) institutional investor. B) senior executive. C) division general manager. D) member of the board of directors.

D

The M-form structure is designed to create checks and balances for managers that increase the probability that a diversified firm will be managed in ways consistent with A) the interests of all of its stakeholders. B) an exclusively short-term perspective. C) an exclusively long-term perspective. D) the interests of its equity holders.

D

The ________ is a subcommittee of the board of directors that maintains the relationship between the firm and external capital markets. A) nominating committee B) audit committee C) personnel and compensation committee D) finance committee

D

When adjusting a division's accounting earnings for use in the economic value added calculations, R&D spending is usually A) subtracted from the division's performance. B) depreciated over the life of the average R&D projected and subtracted from the division's performance. C) amortized over the life of the average R&D projected and added back to the division's performance. D) added back into the division's performance.

D

Which of the following is a weakness of using a hurdle rate as a standard of evaluating the performance of a division? A) The process is time-consuming. B) The process is fraught with political intrigue. C) This approach lets other firms determine what is and what is not excellent performance for a division within a diversified firm. D) The use of such a single standard ignores important differences in performance that might exist across divisions.

D

Which of the following is not a reason that diversified firms might spin off businesses? A) Management may require specific skills that are not present. B) Anticipated economies of scope may not be realized. C) Funding may be needed for other businesses. D) The business is too related to other firm businesses.

D

Which of the following statements regarding institutional investors is accurate? A) Institutional investors tend to be more interested in maximizing the short-term value of their portfolios than in the long-term performance of firms in those portfolios. B) High levels of institutional ownership are negatively related to the level of R&D in a firm. C) High levels of institutional ownership have a strong, positive relationship with the level of R&D in a firm. D) High levels of institutional ownership lead firms to sell strategically unrelated businesses.

D

Which of the following statements regarding outside members of boards of directors is accurate? A) Outside directors, as compared to insiders, tend to focus less on monitoring a firm's economic performance than on other measures of firm performance and are more likely than insider members to dismiss CEOs following poor performance. B) Outside directors, as compared to insiders, tend to focus less on monitoring a firm's economic performance than on other measures of firm performance and are less likely than insider members to dismiss CEOs following poor performance. C) Outside directors, as compared to insiders, tend to focus more on monitoring a firm's economic performance than on other measures of firm performance and are less likely than insider members to dismiss CEOs following poor performance. D) Outside directors, as compared to insiders, tend to focus more on monitoring a firm's economic performance than on other measures of firm performance and are more likely than insider members to dismiss CEOs following poor performance.

D

________ have full profit-and-loss responsibility and typically have multiple functional managers reporting to them. A) Division general managers B) Corporate staff managers C) Senior executives D) Shared activity managers

a

When compared to the strategy implementation responsibilities of senior executives in U-form organizations, when implementing strategy, division general managers in M-form organizations A) tend to have to deal with less conflict. B) have to compete for external capital funding. C) tend to have to deal with substantially more conflict. D) must cooperate with other divisions to exploit corporate economies of scope.

d