Question 1

The title chairman of the board often, but not always, identifies the firm's senior executive.

Accepted Answer

A) True 
 B)False  False

Question 2

Discuss the role of accounting measures of divisional performance, identify three different standards of comparison that can be used when evaluating the accounting performance of a division along with the strengths and weaknesses of each standard, and describe the potential weaknesses of accounting measures of divisional performance.

Accepted Answer

Common accounting measures of divisional performance include the return on the assets controlled by a division, the return on a division's sales, and a division's sales growth. These accounting measures of divisional performance are then compared with some standard to see if a division's performance exceeds or falls short of that standard. Diversified firms use three different standards of comparison when evaluating the performance of a division: (1) a hurdle rate that is common across all the different business units in a firm, (2) a division's budgeted level of performance (which may vary by division), and (3) the average level of profitability of firms in a division's industry.
Each of these standards of comparison has its strengths and weaknesses. For example, if a corporation has a single hurdle rate of profitability that all divisions must meet or exceed, there is little ambiguity about the performance objectives of divisions. On the other hand, such a single standard ignores important differences in performance that might exist across divisions. Comparing a division's actual performance to its budgeted performance allows the performance expectations of different divisions to vary, but the budgeting process is time consuming and fraught with political intrigue. Finally, while comparing a division's performance with the average level of profitability of firms in a division's industry also allows performance expectations to vary across divisions within a diversified firm, this approach lets other firms determine what is and is not excellent performance for a division within a diversified firm. This approach can also be manipulated: By choosing just the "right" firms with which to compare a division's performance, almost any division can be made to look like it's performing better than its industry average.
No matter what standard of comparison is used to evaluate a division's accounting performance, most accounting measures of divisional performance have a common limitation. All these measures have a short-term bias. This short-term bias reflects the fact that all these measures treat investments in resources and capabilities that have the potential for generating value in the long run and costs during a particular year.

Question 3

In 1970, institutions owned 62 percent of the equity traded in the United States; by 1990, institutions owned 48 percent of this equity and by 2002, they owned only 32 percent of this equity.

Accepted Answer

A) True 
 B)False  False

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

In 2005, what percentage of the equity traded in the United States was owned by institutional investors?

Accepted Answer

A)  20% 
B)  38% 
C)  59% 
D)  69% 
A)  20% 
B)  38% 
C)  59% 
D)  69%

Question 6

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

Accepted Answer

A)  stakeholder. 
B)  principal. 
C)  agent. 
D)  stockholder. 
A)  stakeholder. 
B)  principal. 
C)  agent. 
D)  stockholder.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

If a well-managed diversified firm uses both accounting and economic measures, it will be able to unambiguously evaluate divisional performance.

Accepted Answer

A) True 
 B)False

Question 9

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.

Accepted Answer

A)  harvest 
B)  liquidation 
C)  initial public offering 
D)  corporate spin-off 
A)  harvest 
B)  liquidation 
C)  initial public offering 
D)  corporate spin-off

Question 10

Most accounting measures of divisional performance focus on long-term benefits and minimize the possibility of a short-term bias.

Accepted Answer

A) True 
 B)False

Question 11

A board of directors typically consists of 15 to 30 individuals drawn from a firm's top management group and from individuals outside the firm.

Accepted Answer

A) True 
 B)False

Question 12

Most accounting measures of divisional performance have a common limitation in that they

Accepted Answer

A)  have a short-term bias. 
B)  are costly to implement. 
C)  are difficult to interpret. 
D)  have a long-term bias. 
A)  have a short-term bias. 
B)  are costly to implement. 
C)  are difficult to interpret. 
D)  have a long-term bias.

Question 13

Another name for the M-form is the multidivisional structure.

Accepted Answer

A) True 
 B)False

Question 14

Institutional owners are usually pension funds, mutual funds, insurance companies, or other groups of investors that have joined together to manage their investments.

Accepted Answer

A) True 
 B)False

Question 15

If Todd Hienz were the chief operating officer for SpandoCorp, his responsibilities would include

Accepted Answer

A)  supervision of the board of directors in its monitoring role. 
B)  strategy implementation. 
C)  strategy formulation. 
D)  strategy control. 
A)  supervision of the board of directors in its monitoring role. 
B)  strategy implementation. 
C)  strategy formulation. 
D)  strategy control.

Question 16

In a diversified firm, market prices are set by a firm's corporate management to accomplish corporate objectives while transfer prices are determined by the market forces of supply and demand.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

A)  Exchange autonomy 
B)  Mandated full cost 
C)  Mandated market based 
D)  Dual pricing 
A)  Exchange autonomy 
B)  Mandated full cost 
C)  Mandated market based 
D)  Dual pricing

Question 18

Which of the following is a weakness of using a hurdle rate as a standard of evaluating the performance of a division?

Accepted Answer

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. 
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.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A) True 
 B)False

The title chairman of the board often, but not always, identifies the firm's senior executive.

In 1970, institutions owned 62 percent of the equity traded in the United States; by 1990, institutions owned 48 percent of this equity and by 2002, they owned only 32 percent of this equity.

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 2005, what percentage of the equity traded in the United States was owned by institutional investors?

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

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

If a well-managed diversified firm uses both accounting and economic measures, it will be able to unambiguously evaluate divisional performance.

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.

Most accounting measures of divisional performance focus on long-term benefits and minimize the possibility of a short-term bias.

A board of directors typically consists of 15 to 30 individuals drawn from a firm's top management group and from individuals outside the firm.

Most accounting measures of divisional performance have a common limitation in that they

Another name for the M-form is the multidivisional structure.

Institutional owners are usually pension funds, mutual funds, insurance companies, or other groups of investors that have joined together to manage their investments.

If Todd Hienz were the chief operating officer for SpandoCorp, his responsibilities would include

In a diversified firm, market prices are set by a firm's corporate management to accomplish corporate objectives while transfer prices are determined by the market forces of supply and demand.

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?

Which of the following is a weakness of using a hurdle rate as a standard of evaluating the performance of a division?

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

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.

What Is Strategy and the Strategic Management Process

Evaluating a Firms External Environment

Evaluating a Firms Internal Capabilities

Cost Leadership

Product Differentiation

Vertical Integration

Corporate Diversification

Strategic Alliances

Mergers and Acquisitions

International Strategies

Filters

Exam 8: Organizing to Implement Corporate Diversification

The title chairman of the board often, but not always, identifies the firm's senior executive.

In 1970, institutions owned 62 percent of the equity traded in the United States; by 1990, institutions owned 48 percent of this equity and by 2002, they owned only 32 percent of this equity.

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 2005, what percentage of the equity traded in the United States was owned by institutional investors?

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

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

If a well-managed diversified firm uses both accounting and economic measures, it will be able to unambiguously evaluate divisional performance.

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.

Most accounting measures of divisional performance focus on long-term benefits and minimize the possibility of a short-term bias.

A board of directors typically consists of 15 to 30 individuals drawn from a firm's top management group and from individuals outside the firm.

Most accounting measures of divisional performance have a common limitation in that they

Another name for the M-form is the multidivisional structure.

Institutional owners are usually pension funds, mutual funds, insurance companies, or other groups of investors that have joined together to manage their investments.

If Todd Hienz were the chief operating officer for SpandoCorp, his responsibilities would include

In a diversified firm, market prices are set by a firm's corporate management to accomplish corporate objectives while transfer prices are determined by the market forces of supply and demand.

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?

Which of the following is a weakness of using a hurdle rate as a standard of evaluating the performance of a division?

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

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.

What Is Strategy and the Strategic Management Process

Evaluating a Firms External Environment

Evaluating a Firms Internal Capabilities

Cost Leadership

Product Differentiation

Vertical Integration

Corporate Diversification

Strategic Alliances

Mergers and Acquisitions

International Strategies

Filters