Practice MC for CH 5, 11, 12

Which of the following statements about the growth-share matrix is/are TRUE? I. It defines a cash cow as a unit that generates higher cash flows but faces fewer investment opportunities than other types of business in the portfolio. II. To apply the growth-share matrix successfully, the firm must be able to grow new businesses to dominance in their markets. III. The growth-share matrix is appropriate for both mass-market cost-leadership strategies, and for luxury-brand differentiation strategies. a) I and II b) I and III c) II and III d) I, II and III

a) I and II

"Consistency" has a very specific definition in the context of strategy execution. It means that a firm's policies and practices: a) are aligned with its strategic position as cost- or value-leader (differentiator) b) are constant, and do not change, over time c) interact positively with each other to improve the firm's performance d) help the firm become more similar to its competitors

a) are aligned with its strategic position as cost- or value-leader (differentiator)

Which of the following statements is not TRUE for multi-business firms? a) As firms started to grow and expand scope, they switched from a function- or geography-based structure to a product-based structure. b) Firms using financial cross-subsidization from a business unit with strong performance to a unit with weaker performance tend to be highly valued by outside investors. c) The switch to a product-based structure has led to other management challenges to be resolved, such as allocating resources across units, setting prices in these transfers, and combining certain activities to achieve cost advantages. d) The growth-share matrix uses the growth rate of the industry in which the individual business unit competes and its relative market share to determine what management actions should be taken for each business.

b) Firms using financial cross-subsidization from a business unit with strong performance to a unit with weaker performance tend to be highly valued by outside investors.

Which of the following statements about organizational structures is/are TRUE? I. A functional organization is effective in reducing the firm's costs through economies of scope. II. Organizing by geography makes sense when the regions the firm competes in are broadly similar. III. Customer-based organizations emerge when function or geography-based approaches cannot meet the full range of distinct client needs. a) I and II b) I and III c) II and III d) I, II and III

b) I and III

Which of the following is NOT true about the practice of centralizing activities in a multibusiness firm? a) It implies the partial emergence of a single business strategy for all business units b) It addresses the needs of units that require specialized inputs c) Only units with especially strong market positions and contributions to the corporation will be able to resist such decision. d) It benefits units whose strategies are cost-focused

b) It addresses the needs of units that require specialized inputs

Which of the following is NOT true about transfer pricing? a) The internal buyer needs to determine whether it is better off by sourcing from the internal supplier vs. the external market. b) When an internal unit produces a component that is required for another internal unit's operation, the two units are obligated to transact with each other as supplier and buyer. c) The corporate office needs to weigh the pros and cons of serving the interests of the internal buyer vs. internal supplier and set the price that maximizes the parent company's performance. d) In business practice, many large firms use transfer pricing when transacting with overseas subsidiaries to benefit from tax/tariff differences across countries.

b) When an internal unit produces a component that is required for another internal unit's operation, the two units are obligated to transact with each other as supplier and buyer.

The tendency for equity markets to undervalue firms with multiple business units that are linked only through financial cross-subsidization is called: a) the conglomerate contraction b) the diversification discount c) the financial forfeiture d) the multibusiness markdown

b) the diversification discount

Two or more resources or activities are complementary when: a) they are consistent with the goals of the firm b) they produce a more effective outcome together than they would independently c) they come from the same source d) each is necessary for the execution of the other

b) they produce a more effective outcome together than they would independently

Which of the following is NOT true about executive compensation? a) Better alignment of executives' incentive pay and firm performance improves their motivation to improve the firm's and shareholders' value b) incentives (e.g. stocks, stock options) have found to improve firm performance, yet has shown to have side effects such as financial fraud and excessive risk-taking c) It has found to be a highly effective governance mechanism for resolving the agency problem. d) The total compensation package comprises cash components (e.g. salary, bonuses) and equity components (e.g. stocks, stock options, stock grants)

c) It has found to be a highly effective governance mechanism for resolving the agency problem.

Which of the following is NOT true about corporate governance? a) The separation of ownership and control has led to the so-called agency problem, necessitating corporate governance mechanisms to ensure the firm is run within the legal boundaries to improve shareholder value. b) External governance mechanisms such as government regulators intervene when internal mechanisms fail. c) Stewardship theory shares agency theory's economic assumption that managers are self-interested and are inclined to behave opportunistically d) The collapse of Enron and Lehman Brothers exemplify bad corporate governance practice.

c) Stewardship theory shares agency theory's economic assumption that managers are self-interested and are inclined to behave opportunistically

Which of the following is NOT a good argument for dispersed ownership of corporations? a) shareholders can diversify their holdings over many firms b) shareholders can divest from poorly performing firms c) a larger collection of shareholders is likely to do a better job monitoring the firm's activities d) managers are likely to have better info. about the firm's markets and operations than shareholders

c) a larger collection of shareholders is likely to do a better job monitoring the firm's activities

In most cases, a firm's capabilities are: a) more tradeable than its resources b) stable and unchanging over time c) based on the coordinated efforts of its employees d) easily copied by other firms

c) based on the coordinated efforts of its employees

Which of the following might be benefits from Rule 404 of the Sarbanes-Oxley Act? a) more control for professional managers b) weaker power for corporate boards of directors c) better info. for shareholders from increased public scrutiny of top managers and directors d) lower internal auditing costs

c) better info. for shareholders from increased public scrutiny of top managers and directors

Consistency among activities is most important for firms that are: a) stuck in the middle b) targeting niche markets c) pursuing either cost leadership or value-based differentiation d) attempting to introduce a disruptive innovation

c) pursuing either cost leadership or value-based differentiation

Which of the following is NOT a problem associated with incentive systems? a) controllability b) alignment c) retention d) interdependency

c) retention

Which of the following is NOT true about the principal-agent relationship? a) as firms started to expand in scope, owners' control over management and operational decisions became weaker. b) the agency problem refers to the discrepancy in the principals' and agents' interests and information about the business c) the agent (manager) is assumed to act in the best interest of owners since owners have complete control over potential misbehavior d) corporate governance refers to the mechanisms devised to resolve the agency problem

c) the agent (manager) is assumed to act in the best interest of owners since owners have complete control over potential misbehavior

Which of the following does NOT characterize managing relationships between business units in a multi-business firm? a) Building the parent company's infrastructure to support the individual business unit's specific strategies b) Combining activities across business units c) Mandating top-down initiatives that encourage integration and communication between business units d) Applying the same performance metrics to newly developed business units for evaluation and support

d) Applying the same performance metrics to newly developed business units for evaluation and support

What is NOT a key task for the corporate office for managing a multi-business company? a) Deciding how to allocate financial capital across business units when information about the business unit in need of financial support is highly valuable and sensitive b) Deciding the appropriate organizational structure c) Deciding how to determine transfer prices between the internal supplier and internal buyer d) Deciding on the top management team's compensation

d) Deciding on the top management team's compensation

Which of the following is TRUE about the board of directors? a) The CEO determines who sits on the board b) the independence of the board refers to the number of total directors sitting on the board c) board independence has found to warrant higher operation performance d) The board's responsibilities include providing strategic advice to the top management team, hiring the CEO, and representing shareholder interests.

d) The board's responsibilities include providing strategic advice to the top management team, hiring the CEO, and representing shareholder interests.

What is NOT a reason that external capital markets are more efficient than internal markets? a) Political dynamics among corporate managers may deter efficient investment in business opportunities b) Managing the multi-business firm's organizational structure becomes too complex and overwhelming that the the corporate office becomes less efficient in management c) Cognitive biases may exist among corporate managers when making resource allocation decisions d) The corporate office possesses more accurate insider information about business units than outside investors

d) The corporate office possesses more accurate insider information about business units than outside investors

Matrix structures are usually developed in order to: a) prevent customers from taking too much of the firm's economic contribution b) reduce the costs of top management compensation c) help the CEO decide which organizational structure is best d) address inconsistent but equally important strategic goals

d) address inconsistent but equally important strategic goals

Which of the following is NOT a problem commonly faced by firms that have grown through unrelated diversification (i.e. acquisitions of firms based solely on complementary financial profiles)? a) their businesses are overly focused on short-term corporate financial goals b) the complexity of their business portfolio exceeds executives' management skills c) they do not derive any competive advantage from combining their business units in the same corporation d) their internal capital markets tend to expose trade secrets, and cannot accommodate irregular funding patterns

d) their internal capital markets tend to expose trade secrets, and cannot accommodate irregular funding patterns