Exam 8: Organizing to Implement Corporate Diversification

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

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 of equity holders. -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.

In an M-form organization, the management of day-to-day operations is delegated to

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 of equity holders. -Wells Tucker's position in SpandoCorp is best described as

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 the interests of its equity holders.

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

Research on outside members of boards of directors tends to show that outside directors, as compared to insiders, tend to focus less on monitoring a firm's economic performance than on other measures of firm performance.

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.

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

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

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.

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.

The most common organizational structure for implementing a corporate diversification strategy is the ________ structure.

The greatest risk associated with treating shared activities as profit centers is that divisions may choose to obtain no services from the shared activities.

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.

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

Which role in the office of the president is responsible for strategy implementation?

The divisions of an M-form organization are True

In 1970, institutions owned ________ percent of the equity traded in the United States and by 2005 they owned ________ percent of the equity traded in the United States.

Each division in an M-form organization typically adopts a matrix structure and the division general manager takes on the role of senior project executive.