Exam 10: Organizing to Implement Corporate Diversification

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 SpandoCorp's board of directors wanted to ensure that changes in the CEO's compensation would be closely linked to changes in the firm's performance,it should

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

Transfer prices should equal opportunity cost.

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.

The ________ is a subcommittee of the board of directors that maintains the relationship between the firm and external capital markets.

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.

If a division of a multidivisional firm has adjusted accounting earnings of $10 million,a weighted average cost of capital of 10% and a total capital employed by the division of $50 million,the division has an EVA of

The divisions in an M-form organization are true profit-and-loss centers.

When compared to the strategy implementation responsibilities of senior executives in U-form organizations,when implementing strategy,division general managers in M-form organizations

In principle,only the CEO and the president report to the board of directors while other senior managers report only to the CEO.

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

The senior executive in an M-form organization has two responsibilities: strategy formulation and strategy implementation.

Only accounting measures of performance can be used in accurately measuring the performance of divisions within a diversified firm.

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 not an alternative transfer-pricing scheme?

By adjusting for a division's earnings 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.

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?

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

In choosing which transfer pricing system to use,a firm should be less concerned about finding the "right" transfer-pricing mechanism and be more concerned about choosing a transfer-pricing policy that creates the fewest management problems.

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.