Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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.

Accepted Answer

A)  exchange autonomy 
B)  mandated full cost 
C)  mandated market based 
D)  dual pricing

Question 3

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

Accepted Answer

A)  divisional general managers and corporate staff managers. 
B)  corporate staff managers and functional managers who report to corporate staff managers. 
C)  divisional general managers and functional managers who report to division general managers. 
D)  the board of directors and corporate staff managers who report to the board of directors.

Question 4

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

Accepted Answer

A)  a division general manager. 
B)  a member of the corporate staff. 
C)  the senior executive. 
D)  a member of the board of directors.

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

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%

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A)  allocation price 
B)  transfer cost 
C)  market price 
D)  transfer price

Question 9

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.

Question 10

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

Accepted Answer

A)  profit centers 
B)  cost centers 
C)  operation centers 
D)  functional centers

Question 11

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

Question 12

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.

Accepted Answer

The answer of Discuss the relationship between accounting methods of...

Question 13

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

Accepted Answer

A)  matrix 
B)  U-form 
C)  M-form 
D)  functional

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Question 16

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

Accepted Answer

A)  the CEO. 
B)  the chairman of the board. 
C)  the chief operating officer. 
D)  the president.

Question 17

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

Accepted Answer

A)  chairman of the board 
B)  chief executive officer 
C)  chief operating officer 
D)  chief strategist

Question 18

The divisions of an M-form organization are True

Accepted Answer

A)  profit-and-loss centers. 
B)  functional units. 
C)  matrix teams. 
D)  organic structures.

Question 19

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.

Accepted Answer

A)  32; 59 
B)  62; 32 
C)  48; 62 
D)  32; 38

Question 20

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.

Accepted Answer

A) True 
 B)False

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.

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

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.