Policy - Ch. 8

48. A board of directors typically consist 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. 10 to 15 individuals drawn from a firm's top management group and from individuals outside the firm.

56. In 1970 institutions owned ______ percent of the equity traded in the United States and by 2002 they owned _______ percent of the equity traded in the United States. A. 32; 62 B. 62; 32 C. 48; 62 D. 32; 48

A. 32; 62

63. ____________ 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. Division general managers

51. 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. audit committee

60. 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. corporate staff

78. In the __________ organizational structure, each company in a country in which a firm operates is organized as a full profit-and-loss division headed by a divisional general manager who is typically the president of the company in that particular country. A. decentralized federation B. coordinated federation C. centralized hub D. transnational structure

A. decentralized federation

90. If SpandoCorp wanted to implement an international strategy and was not especially concerned with global integration but wanted to be sure to choose the organizational structure that was the most locally responsive, the company should use a A. decentralized federation. B. transnational structure. C. centralized hub. D. coordinated federation.

A. decentralized federation

69. 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. have short-term bias

66. 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. less than; to use the services of shared activities

46. 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. managers investing some of a firm's capital in managerial perquisites that do not add economic value to a firm and managerial risk aversion.

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

A. profit-and-loss centers

82. 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. senior executive

58. The two responsibilities of the senior executive in an M-form organization are A. strategy formulation and strategy implementation. B. strategy formulation and strategic control. C. strategic control and strategy implementation. D. strategy implementation and differentiation.

A. strategy formulation and strategy implementation.

87. If SpandoCorp used a ________ budgeting process it would assume that no project would received funding for the future simply because it was funded in the past and required 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. zero-based

70. If a division of a multi-divisional 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. $5 mil.

75. 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. 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.

54. In which country are all 20 of the largest 20 firms in the economy family dominated? A. the United Kingdom B. Mexico C. Argentina D. New Zealand

B. Mexico

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

B. accounting

80. If the importance of local responsiveness is low, and the importance of global integration is high, a firm should use a ________ approach to managing its international strategy. A. transnational structure B. centralized hub C. coordinated federation D. decentralized federation

B. centralized hub

65. 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. cost centers

42. 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. division

88. 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. mandated full cost

83. 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. member of the corporate staff

45. 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. principal

85. If Todd Hienz was 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. strategy implementation

53. In the United States, approximately what percent of the firms in the Standard & Poor's 500 have their founding families still involved in day-to-day management? A. 50% B. 66% C. 33% D. 25%

C. 33%

47. 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. Board of directors

59. 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. COO

67. ______ 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. Economic value added

55. Which of the following statements regarding family owned firms is accurate? A. The agency problems that exist in professionally managed firms are more pronounced in family-dominated firms. B. Family owned firms have a lower sense of loyalty among their employees than professionally managed firms. C. Family-dominated firms can make strategic decisions faster than large bureaucratic firms. D. Family owned firms tend to respond to short-term fluctuations rather than focusing on long-term growth.

C. Family-dominated firms can make strategic decisions faster than large bureaucratic firms.

77. 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. IPO

SpandoCorp is a diversified firm that makes industrial, military and consumer products from Spandex. SpandoCorp manages each of the businesses that it operates in as a separate division and treats each as a true profit-and-loss center. In this organization, Grace McKenna is responsible for deciding which set of businesses SpandoCorp will operate in and for encouraging behavior that is consistent with this strategy, Wells Tucker provides information to McKenna about the internal and external environments that she uses in her decision making, and Kelly Rae is one of the individuals who is responsible for evaluating the firm's decision making to ensure that it is consistent with the interests if equity holders. 81. Which organizational structure is SpandoCorp using? A. U-form B. Matrix C. M-form D. Functional

C. M-form

74. 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. Mandated market based

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

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

C. economic value added measures of divisional performance

41. 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. m-form

50. 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. that combining these roles is positively correlated with firm performance when the firm operates in slow-growth and simple competitive environments.

72. 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. zero-based

57. 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. High levels of institutional ownership lead firms to sell strategically unrelated businesses.

49. 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. 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.

68. 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. The use of such a single standard ignores important differences in performance that might exist across divisions.

71. 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. added back into the division's performance

79. In the ___________ organizational structure each country operation is organized as a full profit-and-loss center but strategic operational decisions are delegated to division general managers but broader strategic decisions are made at corporate headquarters. A. transnational structure B. centralized hub C. decentralized federation D. coordinated federation

D. coordinated federation

76. 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. corporate spin-off

52. 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. finance committee

84. 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. member of the BOD

64. 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. must cooperate with other divisions to exploit corporate economies of scope.

44. 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 interests of its equity holders

73. 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. transfer price

89. 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 they 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 for the CEO's total compensation package. D. use a compensation package that includes a salary and stock options that represent only a relatively substantial percentage of for the CEO's total compensation package.

D. use a compensation package that includes a salary and stock options that represent only a relatively substantial percentage of for the CEO's total compensation package.