authority the right to direct with permission to act.centralizat.docx

authority the right to direct with permission to act.
centralization/decentralization the degree of delegation of
decision making, authority, and power within an organization.
departmentalization organizing people into different
departments or divisions in which collections of tasks are place
together, such as accounting, marketing, and production.
formalization the presence of rules and procedures.
job a set or series of tasks performed by an individual on behalf
of an organization.
job analysis the process of assigning tasks to jobs.
job description a formal list of tasks and duties.
job design what occurs when managers determine the tasks
needed to be done, who will do them, and what selection criteria
will be used to choose employees and place them on the job.
job specification a list of the eligibility requirements or
qualifications needed to perform a job.
mechanistic organization characterized by high use of rules and
procedures, a greater number of levels in the organization, and
formal relationships between workers, and that is, as a result, a
less flexible method of operation.
mechanization/computerization measures the reliance on
computers and technology to maintain operations.
organic structures that employ few rules and procedures, have a
small number of organizational levels and ranks, allow for
informal relationships among workers and supervisors, and are
much more flexible and adaptable as a result.
organizational design the process by which managers make
specific organizing choices that result in the particular kind of
organizational structure they will utilize.
organizational structure a formal system of task and reporting
relationships that coordinates the activities of members so that
they work together to achieve organizational goals.
organizing the process of bringing people and resources
together to create products and services in an efficient and

effective manner.
responsibility (or accountability) the obligation to complete
tasks as assigned.
standardization the use of a series of job titles that are exactly
the same, and the assignment of workers to perform the same
activities.
Part 1
A business firm will no longer exist after it has been
_________________.
paid with dividends
restructured with its capital components
liquidated
reorganized
repurchased with its stock
The discount rate assigned to an individual project must be
estimated according to
I. the firm's depreciation rate for a levered firm.
II. the actual sources of funding used for the project.
III. an average of the firm's overall cost of capital for the past
five years.
IV. none of the above statements is correct.
I only
II, III and V only

II only
IV only
III and IV only
The net present value (NPV) of a project can be reduced by
I. moving each of the cash inflows forward to a sooner time
period
II. increasing the required discount rate
III. increasing the amount of the final cash inflow
IV. decreasing the project's initial cost at time zero
I only
II only
I, II, III and IV.
II and III only
II, III and IV only
_____________ is defined as the average of a firm's cost of
equity and aftertax cost of debt that is weighted based on the
firm's capital structure.
Subjective cost of capital
Structured cost of capital
Reward to risk ratio
Weighted average cost of capital

Weighted capital gains rate
Pro forma financial statements for a proposed project should:
I. generally include interest expense.
II. be compiled individually specific to the project only.
III. include all the incremental cash flows related to the project.
IV. exclude all project-related fixed asset acquisitions and
disposals.
II, III, and IV only
II and III only
I and II only
I, II, and IV only
none of the options is correct
If Microsoft accepts Project A, it will not have the required
resources to go for Project B. We call these two projects
______________________ projects.
economically scaled
interdependent
mutually exclusive
independent
operationally distinct

M&N Co. made an announcement yesterday. According to this
announcement, the company will make a $.25 regular quarterly
cash payment per share to its shareholders. This will be paid out
of its net income for the year. This kind of cash payment is
considered as __________.
repurchase
regular cash dividend
special dividend
extra cash dividend
liquidating dividend
The dividend growth model can be used to compute the cost of
equity for a firm
I. that pays no dividend
II. that pays a constant dividend
III. that pays dividend with a constant rate of decrease
IV. that pays dividend with a constant rate of increase
II and III only
I and III only
I and II only
I, II and III only
II, III and IV only

The cost of capital for a(n) _________________ is referred to
as unlevered cost of capital.
private entity
governmental entity
corporate shareholder
private individual
all-equity firm
If we do not consider the effect of taxes and the transaction
related costs, a stock repurchase will :
I. reduce the total debt of a firm.
II. reduce the total equity of a firm.
III. decrease the earnings per share.
IV. increase the total assets of a firm.
II and IV only
I and II only
II, III, and IV only
IV only
II only
The correct definition for depreciation tax shield is the
___________________.
amount of tax that is due when an asset is sold

amount of tax that is saved because of the depreciation expense
amount by which the aftertax depreciation expense lowers net
income
tax that is avoided when an asset is sold as salvage
amount of tax that is saved when an asset is purchased
The advantage(s) of the discounted payback method over the
regular payback method in capital budgeting analysis include
I. ease of use
II. liquidity bias
III. the consideration of time value of money
IV. works well for research and development projects
II only
III and IV only
III only
II, III and IV only
I, II and III only
The CORRECT statement(s) include :
I. Regular cash dividends reduce par value of a stock.
II. Extra cash dividends will never be repeated by a firm.
III. A dividend is a liability even before it has been declared.
IV. The dividend yield expresses the annual dividend as a
percentage of current stock price.

IV only
I, II and IV only
I and III only
II and III only
II, III and IV only
The correct statement(s), with respect to M&M Proposition II
with no taxes, include :
I. Financial risk determines the return on assets.
II. Financial risk is determined by the debt-equity ratio.
III. The cost of equity declines when the amount of leverage
used by a firm rises.
IV. The required return on assets is higher than the weighted
average cost of capital.
I and IV only
III and IV only
II only
III only
I and II only
Ignoring any tax effect, a project's cash flows include the cash
flows associated with
I. increase in accounts payable
II. increase in inventory
III. decrease in accounts receivable
IV. equipment acquisition

V. payment of wages
I , II and III only
II, IV and V only
I and III only
I, II, III, IV and V
III only
I. Another name for financial risk is business risk.
II. Financial risk has no impact on the cost of equity.
III. Financial risk is the risk associated with the use of debt.
IV. Financial risk remains the same no matter how much debt
the firm uses.
I, II, III and IV
III only
II and III only
I, II, and III only
I and IV only
I. Automatic dividend reinvestment plans help shareholders
create their own homemade dividend policies.
II. Automatic dividend reinvestment plans allow stockholders
reinvest part or all of the dividends to which they are entitled.

III. Automatic dividend reinvestment plans sometimes grant
employees the privilege of purchasing additional shares at a
discounted price.
I and II only
I, II and III
III only
II only
II and III only
Mary has invested in the stock of Roberta Fitness, Inc. which is
now an all-equity firm. To lever her position, Mary needs to
sell some shares of the Roberta Fitness stock and hold the
proceeds in cash.
create a personal debt-equity ratio of 0.50.
borrow some money and purchase some more shares of
the Roberta Fitness stock.
sell some shares of the Roberta Fitness stock and loan out the
proceeds.
keep her current equity position as the debt of the firm does not
affect her personally.
When calculate the weighted average cost of capital (WACC) of
a firm, we need to know the costs of the capital components as
well as ____________ of the firm.
I. tax rate

II. liquidity ratio
III. depreciation rate
IV. price earning ratio
V. inventory turnover rate
II and IV only
I and III only
I, II, and IV only
I, III, and IV only
I only
Which of the following do(es) not apply to the use of average
accounting return method of project analysis?
I. no time value of money consideration
II. need of a cutoff rate
III. easily obtainable information for computation
IV. based on retained earnings and book value of asset
I, II, and IV only
IV only
III and IV only
I and II only
I, II, III, and IV
I. The IRR is equal to the required return when the net present

value is equal to 1.
II. The IRR always yields the same accept and reject decisions
as the net present value method given mutually exclusive
projects.
III. The IRR method is a better method of analysis than the
average accounting return from a financial point of view.
IV. An investment project with an IRR higher than the required
return should be accepted.
I, II, III and IV
III and IV only
I, II, and III only
I and III only
I, III and IV only
Top of Form
Example of sunk cost is _____________________.
$2,100 increase in comic book sales if a store commences
selling puzzles
$2,000 spent on investigating whether local residents will buy
recycle candles before the consideration of the large scale
production of them.
$24,000 project that must be given up since a similar project is
accepted.
none of the given costs is a suck cost.

$4,500 of lost sales due to a similar item is introduced.
Bottom of Form
Indiana Subway, Inc. had declared a $0.35 per share dividend
on Tuesday, November 8. The dividend will be paid on
Thursday, January 30 to shareholders of record on Thursday,
December 26. The ex-dividend date is
Tuesday, November 8
Thursday, January 30
Wednesday, January 1
Thursday, December 26
Tuesday, December 24
When estimating the operating cash flow for a project, we
cannot include ____________.
I. taxes
II. sunk costs
III. variable costs
IV. interest expenses
V. depreciation tax shield
I, II, III and V only
II and IV only

I and V only
I and II only
TheINCORRECT statement(s) include :
I. The IRR method of analysis does not work well for projects
with non-conventional cash flows.
II. The IRR that causes the profitability index (PI) of the
differences between two project's cash flows to equal zero is
called the discount rate.
III. Just the timing, not the amount, of a project's cash flows
will affect the value of the project's IRR.
IV. The IRR does not consider the time value of money.
I, II, and III only
II, III and IV only
I, III and IV only
III and IV only
I, II, III and IV
I. The opportunity cost of a company-owned building that is
going to be used in a new project should be included as a cash
outflow to the project.
II. Project analysis should only include the cash flows that
affect the income statement.
III. The depreciation tax shield creates a cash inflow for a
project.
IV. Interest expense should not be included as a cash outflow
when analyzing a project.

I only
I, II, III and IV
I, III and IV only
I, II, and III only
II and IV only
I. Discounted payback is used more frequently in business than
is payback.
II. Discounted payback is biased towards long-term projects
while payback is biased towards short-term projects.
III. Payback is a better method of analysis than is discounted
payback because the former considers the time value of money
of the cash flows.
III only
I only
none of the statements is correct
II and III only
I, II and III
I. direct bankruptcy costs
II. indirect bankruptcy costs
III. flotation costs related to bond issuance
IV. sunk costs to investment projects
I and II only

II and III only
I, II, III and IV
I only
III only
I. the sale of the used equipment at the end of the project
II. wage paid to two newly hired workers for the project
III. loan used to finance the project
IV. cost of inventory replenish in the third year
V. purchase of equipment at the beginning of the project
I, II, and IV only
I and III only
I and II only
IV only
V only
Which of the following about the dividend growth model is/are
CORRECT:
I. is as reliable as the estimated rate of growth.
II. can be applied to a firm that does not pay dividends.
III. uses standard deviation to measure the systematic risk of a
firm.
IV. does not consider the risk that future dividends may vary
from their estimated values.
I only

I, II and IV only
I, II and III only
II and III only
II, III and IV only
A firm's value will be at the ______________ if its weighted
average cost of capital (WACC) is at the ______________.
maximum; maximum
maximum; minimum
minimum; minimum
minimum; maximum
the same; minimum
Dell Computer Associates, Inc. currently has a substantial
amount of excess cash. The company is considering to buy back
some of its outstanding shares with this amount of cash. We call
this process _______________.
stock dividend
stock repeal
stock recap

stock repurchase
stock split
Mimi purchased 1,500 shares of Fast Deliveries stock on
November 7. Nathan purchased 1,000 shares of Fast Deliveries
stock on November 8. Fast Deliveries declared a dividend on
October 20 to shareholders of record on November 20 and
payable on December 21. Which one of the following statements
concerning the dividend paid on December 21 is correct given
this information?
Mimi is entitled to the dividend but Nathan is not.
Neither Mimi nor Nathan is entitled to the dividend.
Both Mimi and Nathan are entitled to the dividend.
Both Nathan and Mimi are entitled to one-half of the dividend
amount.
Nathan is entitled to the dividend but Mimi is not.
Which of the following statements related to M&M Proposition
II is/are CORRECT?
I. the size of the pie does not depend on how the pie is sliced.
II. the cost of equity rises as the firm increases its use of debt
financing.
III. without corporate taxes, a firm's cost of equity is a linear
function with a slope equal to RD.
I and III only

II only
I, II and III
III only
I only
Which of the following is/are used in the calculations of the
capital structure weights when computing the weighted average
cost of capital?
I. market value of firm's debt
II. market value of firm's equity
III. market value of firm's preferred stock
IV. yield to maturity of firm's bonds
V. book value of firm's assets
I, III and V only
I, III, IV and V only
I and II only
I, II and III only
Case Study
Starbuck's Structure
What happens when a highly successful business formula begins
to run out of steam? For more than two decades, Starbucks had
reconfigured the coffee marketplace by changing the way people
viewed the product. Until the company entered the market,
coffee was often perceived as a rather banal item consumers

purchased as needed. Price often determined which brand
someone would buy at the store.
Howard Schultz became convinced that he could turn coffee
drinking into a cultural experience. He had traveled to Italy and
watched with interest as city dwellers would stop to begin the
day at a coffee bar. Using the same type of model, Schultz
purchased and opened his first location as Il Giornale. The
company evolved into Starbucks, where multitudes of
consumers began purchasing designer coffees, such as espresso,
cappuccino, and coffee mocha. Store interiors encourage
lounging and relaxing with a newspaper, magazine, laptop, or
friends. Each cafe featured enticements such as jazz music in
the background, additional merchandise to examine, and
comfortable seating.
The original Starbucks chain emphasized location. Cafes were
placed on commuter routes and in other places where people
were likely to gather and socialize. Over time, units expanded
into other major traffic routes, including airports.
Starbucks employs people who enjoy coffee. They are retrained
using motivation programs that include buy-in options. They are
known as baristas, or bar persons, rather than servers, who
become experts in coffee brewing while providing friendly
service to patrons. The company insists on a diverse workforce
that reflects the makeup of the local community. Employees are
also encouraged to pass along ideas about how to improve
operations. Those who make suggestions that are adopted are
rewarded.
Until the 2008 recession, Starbucks had continued to grow.
Some of the units in larger cities experimented with selling
additional products, including lunch service. Then a quickly
collapsing economy, possibly coupled with other problems,
including over expansion, sent the corporation on a downhill
slide. Founder Howard Schultz worried that the addition of so
many locations had watered down the Starbucks experience.
Increased competition became an additional factor that led to
declining sales, the closing of stores, and a loss rather than

profit at the corporate level. McDonalds, Dunkin' Donuts, and
numerous smaller operations began to chip away at Starbucks'
share of the market. Many analysts believed that when
Starbucks was no longer the only place to purchase high-quality
coffee products, and when others were selling at least
acceptable brews at lower prices, the drop in sales would
became inevitable.
Schultz, who had previously stepped down as CEO, returned to
try to bring Starbucks back to prominence. As the economy
continues to recover, time will tell if the company will return to
its previous status.
1. Complete a job description and job specification for a
Starbucks employee.
2. What form of departmentalization should Starbucks use?
Should the form be changed in stores offering food products and
lunch? Why or why not?
3. When the company began to experience financial problems,
should the leadership have tried to centralize power and
decision making, or decentralize the operation?
4. What form of organizational configuration best fits
Starbucks?

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