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Q:
(p. 218) When a firm agrees to a complete distribution of its assets to creditors, most of whom will receive a small fraction of the amount that they are owed, this form of bankruptcy is called a:
A. Reorganization bankruptcy
B. Liquidation bankruptcy
C. Partial bankruptcy
D. Organizational bankruptcy
Q:
(p. 217) Which is considered the least attractive grand strategy?
A. Joint venture
B. Liquidation
C. Concentrated growth
D. Divestiture
Q:
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 firms decision making to ensure that it is consistent with the interests of equity holders.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 usingA) zero-based budgeting.B) corporate budgeting.C) centralized budgetingD) coordinated budgeting.
Q:
(p. 218) When a firm attempts to persuade its creditors to temporarily freeze their claims while it undertakes to reorganize and rebuild its operations more profitably, this form of bankruptcy is called:
A. Reorganization bankruptcy
B. Liquidation bankruptcy
C. Partial bankruptcy
D. Organizational bankruptcy
Q:
(p. 217) As a long-term strategy, this minimizes the loss to all stockholders of the firm:
A. Concentrated growth
B. Divestiture
C. Turnaround
D. Liquidation
Q:
(p. 214) The second phase of the turnaround process is called:
A. Recovery response
B. Turnaround
C. Retrenchment
D. Divestiture
Q:
(p. 217) If a business is sold for its tangible asset value, the strategy is one of:
A. Divestiture
B. Conglomeration
C. Liquidation
D. Diversification
Q:
(p. 216) The grand strategy that involves the sale of a business or major business component is called:
A. Divestiture
B. Integration
C. Diversification
D. Liquidation
Q:
(p. 217) When the grand strategy is liquidation, the business is:
A. Typically sold in parts
B. Sold as a going concern
C. Sold for "good will" value
D. Leased with the option to repurchase
Q:
(p. 213) Retrenchment is typically accomplished through:
A. Asset reduction
B. Profit reduction
C. Cost escalation
D. Revenue enhancement
Q:
(p. 213) The type of strategy typically accomplished either by cost reduction and/or asset reduction is known as:
A. Market development
B. Innovation
C. Liquidation
D. Turnaround
Q:
(p. 213) According to researchers, the grand strategies of retrenchment/turnaround are most often accomplished in extreme circumstances through which of the following?
A. Cost reductions
B. Asset reductions
C. Changes in top management
D. Diversification
Q:
Transfer pricing should equal
A) selling price.
B) opportunity cost.
C) total cost.
D) marginal cost.
Q:
(p. 212) Concentric diversification may be undertaken as a grand strategy because the acquiring firm wishes to:
A. Acquire an investment opportunity
B. Sell off unneeded assets quickly
C. Balance or fill out its product line
D. Trim its product line
Q:
IPO stands for
A) internal product offering.
B) internal price orders.
C) international product orders.
D) initial public offering.
Q:
(p. 212) The motivations of acquiring firms using diversification strategy include:
A. Steadying the growth rate of the firm
B. Decreasing productivity
C. Increasing stock value of the firm
D. Gaining shareholders
Q:
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
Q:
(p. 212) A spin-off usually indicates:
A. Integration
B. Diversification
C. Joint venture
D. Retrenchment
Q:
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.
Q:
(p. 211) With this type of grand strategy, the new businesses selected possess a high degree of compatibility with the current business:
A. Conglomerate diversification
B. Concentric diversification
C. Joint venture
D. Divestiture
Q:
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
Q:
(p. 211) When diversification involves additions of a business related to the firm in terms of technology, markets or products, it involves:
A. Concentrated growth
B. Horizontal integration
C. Concentric diversification
D. Vertical diversification
Q:
(p. 212) If a firm plans to acquire a business because it represents the most promising investment opportunity available, the grand strategy is:
A. Conglomerate diversification
B. Joint venture
C. Concentric diversification
D. Liquidation
Q:
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.
Q:
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?
A) Exchange autonomy
B) Mandated full cost
C) Mandated market based
D) Dual pricing
Q:
(p. 212) Conglomerate diversification is concerned primarily with:
A. Stock appreciation
B. Product development
C. Market synergy
D. Financial returns
Q:
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.
A) allocation price
B) transfer cost
C) market price
D) transfer price
Q:
(p. 212) When the principal or sole consideration of the acquiring firm is the profit pattern of the venture, the grand strategy is usually one of:
A. Innovation
B. Horizontal integration
C. Concentric diversification
D. Conglomerate diversification
Q:
In ________ budgeting, corporate executives create a list of all capital allocation requests from divisions in a firm, rank them from "most important" to "least important" and then fund all the projects a firm can afford, given the amount of capital that is available and no project receives funding simply because it was funded in the past.
A) cost-plus
B) activity-based
C) zero-based
D) revenue-based
Q:
(p. 210) If a shirt manufacturer acquired a chain of men's clothing outlets, this would be an example of:
A. Forward acquisition
B. Backward acquisition
C. Horizontal acquisition D. Conglomerate diversification
Q:
When adjusting a division's accounting earnings for use in the economic value added calculations, R&D spending is usually
A) subtracted from the division's performance.
B) depreciated over the life of the average R&D projected and subtracted from the division's performance.
C) amortized over the life of the average R&D projected and added back to the division's performance.
D) added back into the division's performance.
Q:
(p. 210) If a donut corporation acquires a flour company, this strategy would be called:
A. Vertical acquisition B. Diversification
C. Conglomeration
D. Joint venture
Q:
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
A) $25 million.
B) $5 million.
C) $15 million.
D) $20 million.
Q:
(p. 210) The grand strategy involving the acquisition of businesses that supply the firm with inputs such as raw materials is termed:
A. Forward concentric diversification
B. Sequential horizontal integration
C. Backward vertical acquisition
D. Retrenchment
Q:
Most accounting measures of divisional performance have a common limitation in that they
A) have a short-term bias.
B) are costly to implement.
C) are difficult to interpret.
D) have a long-term bias.
Q:
(p.210) The grand strategy involving the acquisition of businesses that serve as a customer for the firm's outputs, such as warehouses for finished products is called:
A. Backward concentric diversification
B. Pooled horizontal integration
C. Forward vertical acquisition
D. Sequential horizontal integration
Q:
Which of the following is a weakness of using a hurdle rate as a standard of evaluating the performance of a division?
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.
Q:
(p. 212) Motivations of acquiring firms include:
A. Decreased stock price
B. Increased market share
C. Different debt/equity ratio
D. Decreased P/E ratio
Q:
________ is an economic measure of divisional performance.
A) Return on assets
B) Return on a division's sales
C) Economic value added
D) A division's growth rate
Q:
(p. 210) If a shirt manufacturer acquires a textile manufacturer, this strategy is called:
A. Backward vertical acquisition
B. Diversification
C. Joint venture
D. Horizontal acquisition
Q:
When the cost of services from a shared activity is ________ the cost of comparable services provided by a division itself or by an outside supplier than the division, general managers have a strong incentive ________.
A) less than; to use the services of shared activities
B) greater than; to use the services of shared activities
C) less than; to use the services of an outside supplier
D) equal to; to use the services of an outside supplier
Q:
(p. 207) The grand strategy that provides access to new markets for a company while at the same time eliminating competitors is termed:
A. Concentric diversification
B. Horizontal acquisition
C. Vertical acquisition
D. Conglomerate diversification
Q:
Rather than having profit-and-loss responsibilities, ________ are assigned a budget and manage their operations to that budget.
A) profit centers
B) cost centers
C) operation centers
D) functional centers
Q:
(p. 207) If Cola Creations acquires Seltzer Spirit Co., this merger would describe what type of strategy?
A. Joint venture
B. Horizontal acquisition
C. Vertical acquisition
D. Divestiture
Q:
When compared to the strategy implementation responsibilities of senior executives in U-form organizations, when implementing strategy, division general managers in M-form organizations
A) tend to have to deal with less conflict.
B) have to compete for external capital funding.
C) tend to have to deal with substantially more conflict.
D) must cooperate with other divisions to exploit corporate economies of scope.
Q:
________ have full profit-and-loss responsibility and typically have multiple functional managers reporting to them.
A) Division general managers
B) Corporate staff managers
C) Senior executives
D) Shared activity managers
Q:
(p. 210) If a textile producer acquires a shirt manufacturer, this is called:
A. Vertical horizontal acquisition
B. Backward horizontal acquisition
C. Backward vertical acquisition
D. Forward vertical acquisition
Q:
(p.207) When the long-term strategy of a firm is based on growth through the acquisition of one or more similar businesses operating at the same stage of the production-marketing chain, this is called:
A. Vertical integration
B. Conglomeration
C. Horizontal acquisition
D. Liquidation
Q:
In an M-form organization, the management of day-to-day operations is delegated to
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.
Q:
(p. 207) The acquisition of one or more businesses operating at the same stage of the production-marketing chain is an example of:
A. Market development
B. Product development
C. Innovation
D. Horizontal acquisition
Q:
The divided loyalties that divisional staff managers have between corporate staff managers and functional managers is potentially the most problematic in ________ staff functions.
A) marketing
B) accounting
C) logistics
D) production
Q:
The primary responsibility of the ________ is to provide information about the firm's external and internal environments to the firm's senior executive.
A) corporate staff
B) board of directors
C) division general managers
D) shared activity managers
Q:
(p. 207) Few innovative ideas prove to be profitable because of:
A. Low development costs
B. Low pre-marketing costs
C. High research costs
D. High post-marketing costs
Q:
(p. 207) Creating a new-product life cycle is the underlying philosophy of a grand strategy of:
A. Product development
B. Innovation
C. Horizontal integration
D. Market development
Q:
Explain how strategic alliances are a substitute for exploiting economies of scope in diversification.
Q:
(p. 206) Improving the way a detergent smells is an example of:
A. Market expansion
B. Product development
C. Product innovation
D. Product extinction
Q:
Identify two potential substitutes for corporate diversification and discuss how each can provide benefits similar to corporate diversification.
Q:
(p. 206) A "new and improved" product describes:
A. Diversification
B. Concentrated growth
C. Product development
D. Market development
Q:
Identify which economies of scope are more likely to be subject to low-cost imitation and which are less likely to be subject to low-cost imitation and discuss why each is either costly or less costly to duplicate.
Q:
(p. 204) _______ strategy allows firms to leverage some of their traditional strengths by identifying new uses of existing products and by finding new demographic or psycho graphic markets.
A. Innovation
B. Product development
C. Market development
D. Horizontal integration
Q:
Discuss the conditions under which a firm's diversification strategy will be rare.
Q:
Identify and discuss the two economies of scope that do not have the potential for generating positive returns for a firm's outside equity investors.
Q:
(p. 205) Methods to develop new product features include:
A. Inverse
B. Modify
C. Review
D. Retreat
Q:
(p. 205) Attracting competitors' customers encompasses:
A. Decreasing promotional efforts
B. Establishing sharper brand similarities
C. Initiating price cuts
D. Increasing purchase size
Q:
Discuss shared activities as a potential source of economies of scope for diversified firms and identify the potential benefits and limits of activity sharing.
Q:
Define the concept of economies of scope, discuss when they are valuable and identify and differentiate between four of the eight potential economies of scope a diversified firm might try to exploit.
Q:
(p. 205) Specific approaches to the grand strategy of market development include which of the following?
A. Entering additional channels of distribution
B. Attracting competitors' customers
C. Reducing prices
D. Attracting current non-users
Q:
(p. 205) Market development encompasses attracting other market segments. This includes:
A. Increasing promotional effort
B. Including trial use
C. Advertising in other media
D. Opening more branches in the same city
Q:
Specify the two conditions that a corporate diversification strategy must meet in order to create economic value.
Q:
Answer: The five different levels of diversification that firms can pursue:
Q:
(p. 204) The grand strategy commonly ranked second in low risk and cost is:
A. Market development
B. Vertical integration
C. Joint venture
D. Concentrated growth
Q:
Discuss when a firm is implementing a corporate diversification strategy and differentiate between a product diversification strategy, a geographic market diversification strategy and a product-market diversification strategy.
Q:
(p. 205) Specific options under the concentration grand strategy include which of the following?
A. Opening additional geographic markets
B. Increasing present customer's rate of usage
C. Developing new products
D. Selling to a differentiated customer
Q:
At the beginning of 2001, Peach Computers competed exclusively in the computer industry and generated approximately 95% of its revenue from the sales of computers and computer-related software and approximately 5% of its revenues were generated from sales of other peripherals. Further, of these revenues, 60% was from sales in the U.S., 30% was from sales in Europe, 7% was from sales in Asia and 3% was from other areas. In October 2001, Peach entered the personal electronics industry by introducing a new MP3 player known as the PeachPit. In developing and selling the PeachPit, Peach Computers was able to use many of the same R&D facilities, suppliers, production facilities, and distribution and sales outlets as the computers and software Peach Computers traditionally sold. By 2003, the PeachPit MP3 Player, accessories for the unit, and sales of songs on Peach Computers' NectarTunes website accounted for 35% of Peach Computers' revenues.If Peach Computers were looking to getting into the business of making telephones, its diversification would be calledA) related-linked.B) related-constrained.C) related-corporate.D) unrelated.
Q:
(p. 205) Concentration encompasses increasing present customer rate of usage. This includes:
A. Increasing size of purchase
B. Pricing up or down
C. Developing quality variations
D. Marketing in new channels
Q:
(p. 204) Marketing present products, often with only cosmetic modification, to customers in related market areas describes:
A. Diversification
B. Concentrated growth
C. Product development
D. Market development
Q:
(p. 202) Typical risks facing the firm that follow a concentrated growth strategy include:
A. Riskier in stable conditions
B. Extra funds required
C. Faltering markets
D. Defining a broad market correctly
Q:
(p. 202) Under changing conditions, concentrated growth is characterized as:
A. Higher risk
B. Lower risk
C. Decreasing resource needs
D. Lowering revenues
Q:
(p. 202) Under stable conditions, concentrated growth is characterized as:
A. Higher risk
B. Lower risk
C. Increasing resource needs
D. Increasing costs
Q:
(p. 201) The grand strategy in which the firm directs its resources to the profitable growth of a single product, in a single market and with a single technology is termed:
A. Product development
B. Market development
C. Concentrated growth
D. Vertical integration