Question 1

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.

Accepted Answer

The answer of Define what constitutes an agency relationship and...

Question 2

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?

Accepted Answer

A) senior executives 
B) corporate staff 
C) board of directors 
D) division general managers

Question 3

In zero-based budgeting,each project has to stand on its own merits each year by being included among the important projects that a firm can afford to fund and no project receives funding for the future simply because it received funding in the past.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements regarding outside members of boards of directors is accurate?

Accepted Answer

A) Outside directors,as compared to insiders,tend to focus less on monitoring a firm's economic performance than on other measures of firm performance and are more likely than insider members to dismiss CEOs following poor performance. 
B) Outside directors,as compared to insiders,tend to focus less on monitoring a firm's economic performance than on other measures of firm performance and are less likely than insider members to dismiss CEOs following poor performance. 
C) Outside directors,as compared to insiders,tend to focus more on monitoring a firm's economic performance than on other measures of firm performance and are less likely than insider members to dismiss CEOs following poor performance. 
D) Outside directors,as compared to insiders,tend to focus more on monitoring a firm's economic performance than on other measures of firm performance and are more likely than insider members to dismiss CEOs following poor performance.

Question 5

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 6

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 7

Economic theory tells us that transfer prices should equal ________ cost.

Accepted Answer

A) marginal 
B) variable 
C) fixed 
D) opportunity

Question 8

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.

Accepted Answer

The answer of Discuss the role of transfer pricing systems...

Question 9

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 10

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 11

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 wanted to measure the performance of its divisions with a method that would minimize any potential short-term bias,it should use a(n)

Accepted Answer

A) hurdle rate based measure of divisional performance. 
B) divisional budget based measure of performance. 
C) economic value added measure of divisional performance. 
D) measure of performance based on the average level of profitability of firms in a division's industry.

Question 12

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

Accepted Answer

A) audit committee 
B) finance committee 
C) nominating committee 
D) personnel and compensation committee

Question 13

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 14

An important study on executive compensation found that differences in CEO cash compensation is not very responsive to differences in firm performance even if a substantial percentage of the CEO's compensation came in the form of stock and stock options in the firm.

Accepted Answer

A) True 
 B)False

Question 15

The senior executive (the president or CEO)in an M-form organization has two responsibilities:

Accepted Answer

A) budgeting and accounting. 
B) budgeting and mission setting. 
C) strategy formulation and strategy implementation. 
D) strategy formulation and budgeting.

Question 16

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

Accepted Answer

A) product line. 
B) division. 
C) geographic unit. 
D) function.

Question 17

Discuss the importance of compensation policies in diversified firms and identify the CEO compensation package that most closely aligns the interests of the CEO with those of stockholders.

Accepted Answer

The answer of Discuss the importance of compensation policies in...

Question 18

Which of the following statements regarding CEO compensation is accurate?

Accepted Answer

A) Differences in CEO cash compensation are very responsive to differences in firm performance. 
B) If a substantial percentage of a CEO's compensation comes in the form of stock and stock options in the firm,changes in compensation are closely linked with changes in firm performance. 
C) If a substantial percentage of a CEO's compensation comes in the form of stock and stock options in the firm,changes in compensation are not closely linked with changes in firm performance. 
D) If a substantial percentage of a CEO's compensation comes in the form of salary,changes in compensation can be expected to be closely linked with changes in firm performance.

Question 19

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.

Question 20

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

Exam 10: Organizing to Implement Corporate Diversification

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.

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?

In zero-based budgeting,each project has to stand on its own merits each year by being included among the important projects that a firm can afford to fund and no project receives funding for the future simply because it received funding in the past.

Which of the following statements regarding outside members of boards of directors is accurate?

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

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

Economic theory tells us that transfer prices should equal ________ cost.

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.

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.

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.

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

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.

An important study on executive compensation found that differences in CEO cash compensation is not very responsive to differences in firm performance even if a substantial percentage of the CEO's compensation came in the form of stock and stock options in the firm.

The senior executive (the president or CEO) in an M-form organization has two responsibilities:

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

Discuss the importance of compensation policies in diversified firms and identify the CEO compensation package that most closely aligns the interests of the CEO with those of stockholders.

Which of the following statements regarding CEO compensation is accurate?

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

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