75) Which of the following statements regarding CEO compensation is accurate?
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.
76) 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.
A) harvest
B) liquidation
C) initial public offering
D) corporate spin-off
77) A business unit within a diversified firm may be sold to the public through a(n)
A) corporate spin-off.
B) liquidation.
C) IPO.
D) harvest strategy.
78) A ________ exists 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
entity.
A) corporate spin-off
B) franchise
C) division
D) subsidiary
79) IPO stands for
A) internal product offering.
B) internal price orders.
C) international product orders.
D) initial public offering.
80) Transfer pricing should equal
A) selling price.
B) opportunity cost.
C) total cost.
D) marginal cost.
81) Which organizational structure is SpandoCorp using?
A) U-form
B) Matrix
C) M-form
D) Functional
82) Grace McKenna is best described as a(n) ________ in SpandoCorp.
A) senior executive
B) corporate staff member
C) division general manager
D) institutional investor
83) Wells Tucker’s position in SpandoCorp is best described as
A) a division general manager.
B) a member of the corporate staff.
C) the senior executive.
D) a member of the board of directors.
84) Kelly Rae’s position is SpandoCorp is best described as a(n)
A) institutional investor.
B) senior executive.
C) division general manager.
D) member of the board of directors.
85) If Todd Hienz were the chief operating officer for SpandoCorp, his responsibilities would
include
A) supervision of the board of directors in its monitoring role.
B) strategy implementation.
C) strategy formulation.
D) strategy control.
86) 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)
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.
87) If SpandoCorp used a ________ budgeting process, it would assume that no project would
receive funding for the future simply because it was funded in the past and would require each
project to stand on its own merits each year to be included in a list of important projects that the
firm can afford to fund.
A) zero-based
B) cost plus
C) dynamic
D) traditional
88) 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.
A) exchange autonomy
B) mandated full cost
C) mandated market based
D) dual pricing
89) 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
A) use a compensation package that includes only a salary for the CEO.
B) use a compensation package that includes a salary and a cash bonus for the CEO.
C) use a compensation package the includes a salary, a cash bonus and stock options that
represent only a relatively small percentage of the CEO’s total compensation package.
D) use a compensation package that includes a salary and stock options that represent a relatively
substantial percentage of the CEO’s total compensation package.
90) If SpandoCorp decides to use the method of allocating capital where each project receives
funding on its merit and not because it received funding the previous year, it is using
A) zero-based budgeting.
B) corporate budgeting.
C) centralized budgeting
D) coordinated budgeting.
91) Describe the multidivisional, or M-form structure, and how it is used to implement a
corporate diversification strategy.
92) 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.
93) Describe the nature and role of the board of directors in an M-form organization and discuss
who generally serves on the board, the role of outside members on a board of directors and when
the roles of CEO and chairman of the board should be combined or separated.
94) Discuss the role of institutional investors in an M-form organization. In addressing this
question, be sure to identify who institutional investors are and discuss trends in institutional
ownership and whether institutional investors encourage managers to act in ways that are
consistent with the interests of equity holders or if institutional investors are overly myopic.
95) Identify the responsibilities of the senior executive in an M-form organization and discuss
the three different roles in the office of the president and the responsibilities of each role.
96) Discuss the role of division general managers in an M-form organization and compare and
contrast this role with that of senior executives in U-form organizations.
97) 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.
98) 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.
99) 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.
100) 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.