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Copyright © 2019 Pearson Education, Inc.
Scenario: Audio Component Outsourcing
Echo Corporation manufactures high-quality audio components, such as speakers, amplifiers,
and receivers, for home entertainment systems. Echo has been losing market share in recent
years due to the competitive pricing of other audio component manufacturers that engage in
outsourcing. Echo managers are attempting to convince Nathan Douglas, the firm’s founder and
CEO, that outsourcing would enable the firm to be more competitive without sacrificing quality.
54) Which of the following most likely supports the argument of Echo managers to outsource
some of the firm’s manufacturing activities?
A) Echo managers could reduce the wages of U.S. based employees and sub-contractors.
B) Echo could save money by reducing the costs incurred in manufacturing the component parts.
C) Echo managers could implement a marketing campaign for foreign markets that is identical to
the outsourced firm’s marketing campaign.
D) Echo could merge with one of its U.S.-based competitors to gain a larger market share.
55) Which of the following should most likely be considered in making the decision to outsource
some of Echo’s manufacturing activities?
A) Do purchasing components present the lowest cost option for Echo?
B) Would Echo engineers be willing to relocate to a foreign nation?
C) Is Echo prepared to cover moving expenses for its managerial talent?
D) Can Echo find employees for a customer service center in the U.S.?
56) Companies make products rather than buy them in order to reduce total costs.
57) A company often undertakes in-house production when it can manufacture a product for less
than it must pay another business to produce it.
58) Today, due to improved technology, it is fairly easy to persuade an outside supplier to make
significant modifications to a component.
59) Outsourcing refers to the practice of buying from another company a good or a service that is
part of a company’s value-added activities.
60) One reason to buy a product instead of making it in-house is the greater flexibility to respond
to market conditions.
61) Total quality management reduces the responsibility on each individual in the production
process.
62) What role does flexibility play in the make-or-buy decision?
63) Describe the issues involved in the decision of how a company acquires raw materials and
fixed assets.
64) What are the guidelines that provide the basis for quality certification called?
A) WTO standards
B) ISO 1000
C) ISO 9000
D) TQM standards
65) Which of the following statements is true regarding the ISO 9000 standards?
A) They specify details on how companies should develop its quality processes.
B) The standards are applicable to Asia exclusively.
C) ISO 9000 is a certification that companies get for their environment-friendly initiatives.
D) The standards require each company to define and document its own quality processes.
66) ________ is the term used to refer to a production technique in which inventory is kept to a
minimum and inputs to the production process arrive exactly when they are needed.
A) Just-in-time manufacturing
B) Lean manufacturing
C) Continuous production
D) Flow production
67) The suppliers used by Thanos Industries deliver components directly to Thanos
manufacturing center as the inputs are needed for production to minimize Thanos inventory
costs. Thanos most likely uses ________.
A) one-stop shipping
B) just-in-time systems
C) materials management
D) customized logistics processes
68) Which of the following statements is true regarding total quality management (TQM)?
A) TQM emphasizes on a single effort at the start to improve the quality of its products.
B) TQM largely increases the responsibility on each individual to focus on quality.
C) TQM philosophy initially took hold in the U.S.
D) TQM applies solely to an employee’s activities based inside a factory.
69) ________ is an integrated effort to systematically and continuously improve the quality of an
organization’s products and/or services.
A) Total quality management
B) Quality-of-life index
C) Integrated business planning
D) Organizational restructuring
70) A company using just-in-time (JIT) manufacturing involves ________.
A) increased availability of components in large inventories
B) quicker detection of defective materials and components
C) easier training of sales staff regarding product descriptions
D) benefits stemming from combining several Japanese technologies
71) Discuss why companies strive toward quality improvement and the two methods of doing so.
72) Which of the following would companies do in markets that require long payback periods?
A) divest operations
B) implement retrenchment strategies
C) emphasize on decruitment
D) reinvest profits
73) When a market is experiencing rapid growth, a company will ________.
A) emphasize on decruitment
B) divest its operations
C) reinvest in its operations
D) implement retrenchment strategies
74) A loan in which a parent company deposits money with a host-country bank, which then
lends the money to a subsidiary located in the host country is called a ________.
A) syndicated loan
B) back-to-back loan
C) mortgage loan
D) title loan
75) American Depository Receipts (ADRs) are ________.
A) certificates that represent shares of stock in American companies
B) dollar deposits made by foreign firms conducting business in the U.S.
C) certificates that trade in the U.S. and represent shares of stock in a non-U.S. company
D) currency deposits made in the U.S. by firms based in other countries
76) ________ are traded in Luxembourg and London and represent a specific number of shares
in an outside company.
A) Common stock
B) Bills of lading
C) Revocable letters of credit
D) Global Depository Receipts
77) Which of the following is true of American Depository Receipts (ADRs)?
A) Investors who buy ADRs have to pay a currency-conversion fee.
B) There is a minimum purchase requirement for ADRs.
C) Companies offer ADRs in the U.S. to appeal to mutual funds.
D) ADRs are listed and traded in London and Luxembourg.
78) ________ is the financing obtained from investors who believe the borrower will experience
rapid growth and who receive equity in return for their investment.
A) Internal funding
B) Venture capital
C) Credit derivative
D) Mortgage loan
79) Which of the following types of money adds to the volatility of emerging markets because it
can be quickly withdrawn from its investment?
A) hot money
B) patient money
C) key money
D) fiat money
80) ________ refers to the foreign direct investment in factories, equipment, and land that cannot
be pulled out of the market quickly.
A) Hot money
B) Patient money
C) Fiat money
D) Key money
81) Money earned from the sale of goods and services is known as ________.
A) revenue
B) dividend
C) depreciation
D) book value
82) The ________ of a company is the mix of equity, debt, and internally generated funds that it
uses to finance its activities.
A) enterprise value
B) stock value
C) capital structure
D) corporate structure
83) ________ appeals to companies because it lowers the amount of taxes the companies must
pay.
A) Debt
B) Equity
C) Stock value
D) Enterprise value
29
Copyright © 2019 Pearson Education, Inc.
Scenario: Audio Component Outsourcing
Echo Corporation manufactures high-quality audio components, such as speakers, amplifiers,
and receivers, for home entertainment systems. Echo has been losing market share in recent
years due to the competitive pricing of other audio component manufacturers that engage in
outsourcing. Echo managers are attempting to convince Nathan Douglas, the firm’s founder and
CEO, that outsourcing would enable the firm to be more competitive without sacrificing quality.
84) Which of the following is most likely a potential benefit for Echo if it outsources some of its
manufacturing activities?
A) heightened communications awareness
B) increased activity in e-commerce sales
C) strong intellectual property protection
D) eliminating the exposure of assets to political risk
85) Economic forecasts reveal that the U.S. dollar is expected to decline relative to the Euro.
Which of the following is the most advantageous method of obtaining funding for Verandas
under these conditions?
A) borrowing from U.S. banks
B) issuing equity in Germany
C) issuing equity in the U.S.
D) borrowing from Dutch banks
86) The Verandas U.S. subsidiary was turned down when it tried to borrow from a U.S. bank.
The bank manager suggested that the parent firm deposit money with the U.S. bank’s Dutch
branch, and then the U.S. bank’s home office would lend the money to the U.S. subsidiary. This
type of arrangement is known as a(n) ________.
A) mortgage loan
B) title loan
C) back-to-back loan
D) syndicated loan
87) If Verandas International chooses to pursue equity financing, but wants to avoid the time and
money required to comply with stock exchange regulations, the company would most likely
issue ________.
A) American Depository Receipts
B) bills of lading
C) equity shares
D) irrevocable letters of credit
88) The ISO 9000 is a production technique in which inputs to the production process arrive
exactly when they are needed.
89) Just-in-time manufacturing drastically increases the costs associated with large inventories in
the production process.
90) Companies usually decide to reinvest when a market is experiencing rapid growth.
91) A back-to-back loan is one in which a subsidiary acquires a loan from the same bank where
its parent secured the first loan.
92) A major disadvantage of American Depository Receipts (ADRs) is that investors who buy
them must pay currency-conversion fees.
93) Venture capital is a source of debt financing for successful multinational companies.
94) Hot money is the cash that can be quickly withdrawn from a market in times of crisis.
95) Debt appeals to companies because it lowers the amount of taxes the companies must pay.
96) Why might companies decide to reinvest, scale back, or divest local operations?
97) What are the options available to companies seeking financial resources?
98) What are the advantages of American Depository Receipts (ADRs)?
99) How can companies use internal funding to finance ongoing international business activities?
100) Explain the concept of capital structure as it applies to a company with international
operations.