Exam 8: Organizing to Implement Corporate Diversification

In a multidivisional structure, each business that the firm engages in is managed through 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

Discuss the relationship between accounting methods of measuring divisional performance and economic methods, identify the formula used for calculating economic value added, and discuss methods for adjusting accounting earnings and the importance of making these adjustments.

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

To the extent that a board of directors begins to operate a business on a day-to-day basis, it goes beyond its capabilities.

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 ________.

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.

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?

The ________ is the subcommittee of the board of directors that is responsible for ensuring the accuracy of accounting and financial statements.

Transfer prices should equal opportunity cost.

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.

Which of the following statements regarding CEO compensation is accurate?

Whenever one party to an exchange delegates decision-making authority to a second party, an agency relationship has been created between these parties.

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.

Define what constitutes an agency relationship and the roles of the principal and the agent; discuss how the agency relationship is reflected in the context of corporate diversification and when the agency relationship can be effective; and identify two common agency problems.

Identify the responsibilities of the senior executive in an M-form organization and discuss the three different roles in the office of the president and the responsibilities of each role.

The two responsibilities of the senior executive in an M-form organization are

Rather than having profit-and-loss responsibilities, ________ are assigned a budget and manage their operations to that budget.

Economic methods of divisional performance in a diversified firm build on accounting methods but adjust those methods to incorporate short-term investments that may generate long-term benefits.

In the multidivisional structure, each business that the firm engages in is managed through a division.