Exam 8: Organizing to Implement Corporate Diversification

One of the strengths of using a hurdle rate to measure the performance of divisions in a diversified firm is that if the corporation has a single hurdle rate,there is little ambiguity about the performance objectives of divisions.

All firms that use the multidivisional structure use the same criteria for defining the boundaries of profit-and-loss centers.

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)

It is unusual for a diversified firm to change its transfer-pricing mechanisms every few years in an attempt to find the "right" transfer-pricing mechanism.

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.

Traditionally,the compensation of corporate managers in a diversified firm has been only loosely connected to the firm's economic performance.

Supervision of the board of directors in its monitoring role is the responsibility of

Which of the following statements regarding CEO compensation is accurate?

In an agency relationship,the party that delegates decision-making authority to another individual is known as the

Corporate spin-offs are different from asset divestitures.

Which of the following statements regarding institutional investors is accurate?

Economic measures of divisional performance in a diversified firm compare a division's performance with a firm's cost of capital and these measures increase the potential for gaming,which is generally minimized by accounting measures.

The most common organization structure for implementing a corporate diversification strategy is the U-form.

Discuss the role of transfer pricing systems in an M-form organization,identify difficulties with setting optimal prices,and identify four alternative transfer pricing schemes.

Wells Tucker's position in SpandoCorp is best described as

One common agency problem occurs when managers decide to take some of a firm's capital and invest it in managerial perquisites that do not add economic value to the firm but that do directly benefit those managers.

________ have full profit-and-loss responsibility and typically have multiple functional managers reporting to them.

In an agency relationship the party delegating the decision-making authority is called the agent.

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 ________.

By adjusting for a division's earning and accounting for the cost of investing in a division,economic value added is a much more accurate estimate of a division's economic performance than are traditional accounting measures of performance.