Fixed Accounting

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Assignment 1: Client Letter

Due Week 2 and worth 150 points

Imagine that you are a Certified Public Accountant (CPA) with a new client who needs an opinion on the most advantageous capital structure of a new corporation. Your client formed the corporation in question to provide technology to the medical profession to facilitate compliance with the Health Insurance Portability and Accountability Act (HIPAA). Your client is very excited because of the ability to secure several significant contracts with sufficient capital.

Use the Internet and Strayer databases to research the advantages and disadvantages of debt for capital formation versus equity for capital formation of a corporation. Prepare a formal letter to the client using the six (6) step tax research process in Chapter 1 and demonstrated in Appendix A of your textbook as a guide.

Write a one to two (1-2) page letter in which you:

1.    Compare the tax advantages of debt versus equity capital formation of the corporation for the client.

2.    Recommend to the client whether he / she should use debt or equity for capital formation of the new corporation, based on your research. Provide a rationale for the response.

3.    Use the six (6) step tax research process, located in Chapter 1 and demonstrated in Appendix A of the textbook, to record your research for communications to the client.

Your assignment must follow these formatting requirements:

·         Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

·         Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length

Running head: CLIENT LETTER 1

CLIENT LETTER 4

 

 

 

 

 

Client Letter

Karen

ACC 565

Organizational Tax Research and Planning

November 28, 2013

Dr. Michael Anyanwu

Professor

 

 

 

Richardson Accounting

143 Karen Ct

North Charleston, SC 29405

 

October 29, 2013

Keon Brown, Chief Financial Officer

Brown Industries

9876 State St.

Charleston, SC 29425

 

Dear Mr. Brown:

 

It is a pleasure to be able to address you today in reference to your new company, Brown Industries. As there is a drastic need for ways to ensure compliance with the Health Insurance Portability and Accountability Act (HIPAA) in the medical profession, I am excited to see the technology that you incorporate.

 

You contacted me on October 1, 2013 inquiring if it would be more advantageous to use debt or equity for capital formation of the new corporation. While both equity and debt capital have their own advantaged and disadvantages, debt capital holds the biggest tax advantages for you company.

 

In reaching this conclusion, research was performed on both debt and equity capital. Specific attention was paid to the tax advantages and disadvantages of each. Also taken into consideration was any information disclosed to us about your company and its operations.

 

The interest paid on debt capital is tax exempt; hence, the company’s loan costs are lowered. Creditors have no say in the conduct of the business, so by issuing debt capital, the company does not dilute the ownership rights of the shareholders. Also, as the interest rates are predetermined, the management is able to budget for the payments. During the initial years of the company’s formation, it is able to raise equity capital more easily than debt capital. The company is not, at any time, obligated to repay the money as long as it operates, and the company pays dividends only if it makes profits. However, tax payments are required on dividends.

 

Another consideration is that both instruments, debt and equity, are viewed and evaluated by credit rating agencies. Once all of the volatility and safety features related to each capital type have been dissected, the credit rating agency will make recommendations of where to invest. In this case, they agree that debt capital is currently the best option.

 

Conclusion

 

To re-iterate what has previously been said, according to the research conducted by Richardson Accounting and a credit rating agency on behalf of Brown Industries, it has been determined that currently debt capital is the best financing option due to tax advantages. Since this may not be the case in the future, it is suggested that research be conducted each time that additional capital is needed in order to verify which type of capital would best suit the company’s needs at that time.

 

 

If you have any questions concerning this recommendation, please call me via phone @ 843-987-6543 or email at [email protected].

 

 

 

 

Sincerely,

 

 

Karen Richardson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

 

Raghavendra, P. (2010, December 3). Comparison of Issue Debt vs. Equity | eHow. eHow. Retrieved from http://www.ehow.com/about_7593181_comparison-issue-debt-vs-equity.html

Running head:

 

CLIENT LETTER

 

 

 

 

1

 

 

 

 

 

 

 

 

Client Letter

 

Karen

 

ACC 565

 

Organizational Tax Research and Planning

 

November 28, 2013

 

Dr. Michael Anyanwu

 

Professor

 
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Financial Statements Assignment

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Hello,

Please read the assignment before bidding.

Thanks.

 

Assignment Content

Purpose of Assignment

This activity helps students recognize the significant role accounting plays in providing financial information to management for decision making through the evaluation of financial statements. This experiential assignment requires students to use ratios to evaluate and analyze a company’s liquidity, solvency, and profitability.

Two-Rivers Inc. (TRI) manufactures a variety of consumer products. The company’s founders have run the company for thirty years and are now interested in retiring. Consequently, they are seeking a purchaser, and a group of investors is looking into the acquisition of TRI. To evaluate its financial stability, TRI was requested to provide its latest financial statements and selected financial ratios. Summary information provided by TRI Document presented below.

TRI Documents

Required:

a. Calculate the select financial ratios for the fiscal year Year 2. (use MS word or excel but excel is more recommended)

b. Interpret what each of these financial ratios means in terms of TRI’s financial stability and operating efficiency.

Purpose of Assignment

 

This activity helps students recognize the significant role accounting plays in providing financial information to management for decision making through the evaluation of financial statements. This experiential assignment requires students to use ratios to evaluate and analyze a company’s liquidity, solvency, and profitability.

 

 

Two-Rivers Inc. (TRI) manufactures a variety of consumer products. The company’s founders have run the company for thirty years and are now interested in retiring. Consequently, they are seeking a purchaser, and a group of investors is looking into the acquisition of TRI. To evaluate its financial stability, TRI was requested to provide its latest financial statements and selected financial ratios. Summary information provided by TRI is presented below.  cid:image004.png@01D4F6AB.1688EDA0   cid:image005.png@01D4F6AB.1688EDA0   cid:image006.png@01D4F6AB.1688EDA0  Required: a. Calculate the select financial ratios for the fiscal year Year 2. (use MS word or excel but excel is more recommended)

b. Interpret what each of these financial ratios means in terms of TRI’s financial stability and operating efficiency.

 

Click the Assignment Files tab to submit your assignment.

 
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financial ratios for Chase

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Resource:  Financial Statements for (JP Morgan Chase

Review chases financial statements from the past three years.

Calculate the financial ratios for Chase

and then interpret those results against  3 banking industry companies historical data as well as industry benchmarks:

  • Compare the financial ratios with each of the preceding three (3) years (e.g. 2014 with 2013; 2013 with 2012; and 2012 with 2011).
  • Compare the calculated financial ratios against the industry benchmarks for the industry of your assigned company.

Write an apa with references 750 word summary of your analysis.

Show financial calculations where appropriate

The attached the professor sent so just in case it may be useful

#4.2

4.2. Liquidity ratios: Flying Penguins Corp. has total current assets of $11,845,175,
current liabilities of $5,311,020, and a quick ratio of 0.89.
What is its level of inventory?
Total current assets $ 11,845,175.00
Total current liabilities $ 5,311,020.00
Quick ratio 0.89
Quick ratio = (Total Current assets – Inventory)
Current Liabilities
Inventory = Total Current assets -(Quick ratio * Current Liabilities)
Inventory = $ 7,118,367.20
Check:
Quick ratio= 0.89

#4.3

4.3. Efficiency ratio: If Newton Manufacturers have an accounts receivable
turnover of 4.8 times and net sales of $7,812,379, what is its level of receivables?
Accounts receivable turnover 4.8 times
Net sales $ 7,812,379
A/R Turnover = Net sales
A/R
A/R = Net sales
A/R Turnover
A/R = 1,627,578.96

#4.5

4.5. Efficiency ratio: Sorenson Inc. has sales of $3,112,489,
a gross profit margin of 23.1 percent, and inventory of $833,145.
What are the company’s inventory turnover ratio and days’ sales in inventory?
Sales $ 3,112,489
Gross profit margin 23.10%
Inventory $ 833,145
Inventory turnover ratio = Cost of Goods Sold/Inventory
Day’s sales in inventory = 365 days/Inventory turnover ratio
Cost of goods sold = $ 2,393,504
Inventory turnover ratio 2.87
Day’s sales in inventory 127.05 days

#4.7

4.7. Leverage ratios: Norton Company has a debt-to-equity ratio of 1.65,
ROA of 11.3 percent, and total equity of $1,322,796. What are the
company’s equity multiplier, debt ratio, and ROE?
Debt-to-equity ratio 1.65
ROA 11.30%
Total equity $ 1,322,796
Equity multiplier = Total Assets/Total Equity
Debt ratio= Total Debt/Total Assets
ROE = ROA * Equity multiplier
Debt-to-equity ratio = Total Debt/Total equity –>Total Debt = Debt-to-equity ratio*Total equity
Total Debt= 2,182,613.40
Total Assets = Total Debt + Total Equity = 3,505,409.40
Equity multiplier= $ 2.65
Debt ratio = 62.26%
ROE 29.95%

#4.8

4.8. DuPont equation: The Rangoon Timber Company has the following relationships:
Sales/Total assets = 2.23; ROA = 9.69%; ROE = 16.4%
What are Rangoon’s profit margin and debt ratio?
Sales/Total Assets= 2.23
ROA= 9.69%
ROE= 16.40%
Profit margin = Net Income/Sales
Debt ratio = Total Debt/Total Assets
ROA = Net Income/Total Assets
ROE = Net Income/ Total equity
Based on the Du Pont Breakdown:
ROA = (Net Income/Sales)*(Sales/Total Assets)
and
ROE = (Net Income/Sales)*(Sales/Total Assets)*(Total Assets/Equity)
ROA Breakdown:
9.69% =(Net Income/Sales)* 2.23
==>(Net Income/Sales) = 4.35%
Profit Margin = 4.35%
ROE= 9.69% *TA/Equity
16.40% =(TA/Equity) X 9.69%
==>(TA/Equity)= 1.692
==>Equity/Total Assets= 1/(TA/Equity)
==>Equity/Total Assets= 59.09%
Debt/Total Assets = 1-(Equity/Total Assets)= 40.91%
Alternative way:
TA/Equity = (ROE/ROA)= 1.692
Equity/TA=1/(TA/EQ) 59.09%
Debt /TA= 1- (E/TA) 40.91%

#4.12

4.12 Market value ratios: Rockwell Jewelers has announced net earnings of
$6,481,778 for this year. The company has 2,543,800 shares outstanding,
and the year-end stock price is $54.21. What are the company’s earnings
per share and P/E ratio?
Net earnings 6,481,778
# of shares outstanding 2,543,800
Year-end stock price $54.21
Earnings per share 2.55
P/E ratio $21.27

#4.11

4.11 Benchmark analysis: Trademark Corp.’s financial manager collected
the following information for its peer group so it can compare
its own performance against the peers.
Ratios Trademark Peer Group
DSO 33.5 days 27.9 days
Total assets turnover 2.3 X 3.7 X
Inventory turnover 1.8 X 2.8 X
Quick ratio 0.6 X 1.3 X
a .Explain how Trademark is doing relative to its peers.
b. How do the industry ratios help Trademark’s management?
a. Trademark is lagging behind its peer group in all four areas. It takes, on
average, about 6 more days to collect its receivables, has a slower inventory and total assets turnover, and
lower liquidity than its peers.
b. The industry ratios help Trademark’s management by giving them a benchmark
representing the average performance in the industry, against which they can compare
the firm’s performance. Accordingly, corrective action can be taken by determining how much
the firm’s assets and liabilities need to be changed to match the peer group.

#4.14

4.14 Liquidity ratios: Laurel Electronics has a quick ratio of 1.15,
current liabilities of $5,311,020, and inventories of $7,121,599.
What is the firm’s current ratio?
Quick ratio 1.15
Current liabilities $ 5,311,020
Inventories $ 7,121,599
Current ratio = Current assets/Current Liabilities
Quick ratio =( Total Current Assets – Inventories)/ Current Liabilities
==> Total Current Assets = (Quick ratio * Current Liabilities)+Inventories
==> Total Current Assets = $ 13,229,272
Current ratio= 2.49

#4.16

4.16 Efficiency ratio: Norwood Corp. currently has accounts receivable of
$1,223,675 on net sales of $6,216,900. What are its accounts
receivable turnover ratio and days’ sales outstanding?
Accounts receivable $ 1,223,675
Net sales $ 6,216,900
Days’ sales outstanding = 365/Accounts receivable turnover
Accounts receivable turnover = Net sales/Accounts receivable
Accounts receivable turnover= 5.081
Days’ sales outstanding= 72 days

#4.6

4.6. Leverage ratios: Breckenridge Ski Company has total assets of
$422,235,811 and a debt ratio of 29.5 percent. Calculate the company’s
debt-to-equity ratio and the equity multiplier.
Total assets $ 422,235,811
Debt ratio 29.50%
Debt ratio = Total Debt / Total Assets –> Total Debt = Debt ratio * Total assets
Debt-to-equity ratio = Total debt/Shareholder’s equity
Equity Multiplier = Total Assets/Shareholder’s equity
Shareholder’s equity = Total Assets – Total Debt
Total Debt = 124,559,564.24
Shareholders’ equity = 297,676,246.76
Debt-to-equity ratio = 41.84%
Equity Multiplier 1.42

#4.30

4.30 Blackwell Automotive’s balance sheet at the end of its most recent fiscal year shows the following information:
Assets As of 3/31/2011 Liabilities and Equity
Cash and marketable sec. $23,015 Accounts payable and accruals $163,257
Accounts receivable $141,258 Notes payable $21,115
Inventories $212,444
Total current assets $387,940 Total current liabilities $184,372
Long-term debt $168,022
Net plant and equipment $711,256 Total liabilities $352,394
Goodwill and other assets $78,656 Common stock $313,299
Retained earnings $512,159
Total assets $1,177,852 Total liabilities and equity $1,177,852
In addition on, it was reported that the firm had a net income of $156,042
on sales of $4,063,589.
a. What are the firm’s current ratio and quick ratio?
b. Calculate the firm’s days’ sales outstanding (DSO), total asset
turnover ratio, and fixed asset turnover ratio.
Current ratio = Total current assets/Total current liabilities 2.10 times
Quick ratio = (Total current assets – Inventory)/Total current liabilities 0.95 times
Sales = 4,063,589 Net income = 156,042
Days’ sales outstanding = 365/Accounts receivables turnover 12.69 days
Accounts receivables turnover = Sales/Accounts receivables 28.77
Total asset turnover = Sales/Total assets 3.45 times
Fixed asset turnover = Sales/Fixed assets 5.71 times

#4.32

4.32 Ratio analysis: Refer to the information above for Nederland Consumer
Products Company. Compute the firm’s ratios for the following categories and
briefly evaluate the company’s performance from these numbers.
a. Efficiency ratios
b. Asset turnover ratios
c. Leverage ratios
d. Coverage ratios
As Reported on Annual Income Statement 9/30/08
Net sales $51,407
Cost of products sold $25,076
Gross margin $26,331
Marketing, research, administrative exp. $15,746
Depreciation $758
Operating income (loss) $9,827
Interest expense $629
Other nonoperating income (expense), net $152
Earnings (loss) before income taxes $9,350
Income taxes $2,869
Net earnings (loss) $6,481
As Reported on Annual Balance Sheet 9/30/08
Assets Liabilities and Equity
Cash and cash equivalents 5,469 Accounts payable 3,617
Investment securities 423 Accrued and other liabilities 7,689
Accounts receivable 4,062 Taxes payable 2,554
Total inventories 4,400 Debt due within one year 8,287
Deferred income taxes 958
Prepaid expenses and other receivables 1,803
Total current assets 17,115 Total current liabilities 22,147
Property, plant, and equipment, at cost 25,304 Long-term debt 12,554
Less: Accumulated depreciation 11,196 Deferred income taxes 2,261
Net property, plant, and equipment 14,108 Other noncurrent liabilities 2,808
Net goodwill and other intangible assets 23,900 Total liabilities 39,770
Other noncurrent assets 1,925 Convertible class A preferred stock 1,526
Common stock 2,141
Retained earnings 13,611
Total shareholders’ equity (deficit) 17,278
Total assets 57,048 Total liabilites and shareholders’ equity 57,048
Efficiency ratios 2008
Inventory Turnover = Cost of goods sold/Inventory = 5.70 times
Day’s Sales in Inventory = 365 days/Inventory turnover = 64.05 days
Accounts Receivable Turnover = Net sales/Account receivable = 12.66 times
Days’ Sales Outstanding = 365 Days/Account receivable turnover 28.84 days
Asset turnover ratios
Total Asset Turnover = Net sales/Total assets 0.90 times
Fixed Asset Turnover = Net sales/Net fixed assets 3.64 times
Leverage ratios
Total Debt Ratio = Total debt/Total assets 0.70
Debt-Equity Ratio = Total debt/Total equity 2.30
Equity Multiplier = Total assets/ Total equity 3.30 times
Coverage ratios
Interest Coverage =Times Interest Earned = EBIT/Interest expense 15.62 times
Cash Coverage = (EBIT + Depreciation)/Interest expense 16.83 times

#4.31

4.31 The following are the financial statements of Nederland
Consumer Products Company reported for the fiscal year ended September 30, 2011.
As Reported on Annual Income Statement 9/30/11
Net sales $51,407
Cost of products sold $25,076
Gross margin $26,331
Marketing, research, administrative exp. $15,746
Depreciation $758
Operating income (loss) $9,827
Interest expense $629
Other nonoperating income (expense), net $152
Earnings (loss) before income taxes $9,350
Income taxes $2,869
Net earnings (loss) $6,481
As Reported on Annual Balance Sheet 9/30/11
Assets Liabilities and Equity
Cash and cash equivalents 5,469 Accounts payable 3,617
Investment securities 423 Accrued and other liabilities 7,689
Accounts receivable 4,062 Taxes payable 2,554
Total inventories 4,400 Debt due within one year 8,287
Deferred income taxes 958
Prepaid expenses and other receivables 1,803
Total current assets 17,115 Total current liabilities 22,147
Property, plant, and equipment, at cost 25,304 Long-term debt 12,554
Less: Accumulated depreciation 11,196 Deferred income taxes 2,261
Net property, plant, and equipment 14,108 Other noncurrent liabilities 2,808
Net goodwill and other intangible assets 23,900 Total liabilities 39,770
Other noncurrent assets 1,925 Convertible class A preferred stock 1,526
Common stock 2,141
Retained earnings 13,611
Total shareholders’ equity (deficit) 17,278
Total assets 57,048 Total liabilites and shareholders’ equity 57,048
Calculate all the ratios (for which industry figures are available) for
Nederland and compare the firm’s ratios with the industry ratios.
Industry Ratios Nederland Consumer Products Co. Ratios Comment
Current ratio 2.05 0.77 Weak
Quick ratio 0.78 0.57 Weak
Gross margin 23.90% 51.22% Much stronger
Profit margin 12.30% 12.61% Slightly better
Debt ratio 0.23 0.70 Highly leveraged with more short term debt
Long-term debt to equity 0.98 0.73 Relatively less LTD
Interest coverage 5.62 14.86 Much higher
ROA 5.30% 11.36% Much higher
ROE 18.80% 37.51% Much higher

#4.34

4.34 Nugent, Inc., has a gross profit margin of 31.7 percent on
sales of $9,865,214 and total assets of $7,125,852. The company has a current
ratio of 2.7 times, accounts receivable of $1,715,363, cash and marketable
securities of $315,488, and current liabilities of $870,938.
a. What is Nugent’s level of current assets?
b. How much inventory does the firm have? What is the inventory turnover ratio?
c. What is Nugent’s days’ sales outstanding?
d. If management wants to set a target DSO of 30 days, what should
Nugent’s accounts receivable be?
Sales $ 9,865,214
Total assets $ 7,125,852
Accounts receivable $ 1,715,363
Cash and marketable securities $ 315,488
Current liabilities $ 870,938
Target DSO 30 days
Gross profit margin 31.70%
Current ratio 2.7 times
a) Current ratio = Current assets/Current liabilities
==> Current assets = Current ratio * Current liabilities
==> Current assets = $ 2,351,532.60
b) Total current assets = Cash and marketable securities + A/R + Inventory
==> Inventory = Total current assets -Cash and M/S – A/R
Inventory = $ 320,681.60
c) Days’ sales outstanding = 365/Accounts receivable turnover
Accounts receivable turnover = Sales/Accounts receivable
Accounts receivable turnover = $ 5.75
DSO = 63.47 days
d) Target DSO = 30 days
Since, Days’ sales outstanding = 365/Accounts receivable turnover
==> Accounts receivable turnover = 365/DSO
Accounts receivable turnover would have to be 12.1666666667
and since, Accounts receivable = Sales/Accounts receivabel turnover
Accounts receivable would have to be 810,839.51
i.e. A/R would have to decline by $ 904,523.49

#4.35

4.35 Recreational Supplies Co. has net sales of $11,655,000,
an ROE of 17.64 percent, and a total asset turnover of 2.89 times. If the firm
has a debt-to-equity ratio of 1.43, what is the company’s net income?
Net sales $ 11,655,000
ROE 17.64%
Total asset turnover 2.89 times
Debt-equity ratio 1.43
What is the company’s net income?
Equity multiplier = 1 + Debt-to-equity ratio 2.43
Return on equity = Net profit margin * Total Asset turnover * Equity multiplier
==> Net profit margin = Return on equity/(Total asset turnover * Equity multiplier)
==> Net profit margin = 2.51%
Net income = Net sales * Net profit margin = $ 292,756.63

STP #4.1

STP #4.1. Morgan Sports Equipment Company has accounts payable of $1,221,669,
cash of $ 677,423, inventory of $ 2,312,478, accounts receivable of $845,113,
and net working capital of $2,297,945. What are the company’s current ratio
and quick ratio?
Accounts payable $ 1,221,669
Cash $ 677,423
Accounts receivable $ 845,113
Inventory $ 2,312,478
Net working capital $ 2,297,945
Current ratio = Current assets / Current liabilities 2.50
Current assets = Cash + A/R + Inventory = $ 3,835,014
Net working capital = Current assets – Current liabilities
==> Current liabilities = Current assets – Net working capital $ 1,537,069
Quick ratio = (Current assets – iInventories)/Current liabilities= 0.99

STP #4.2

STP #4.2. Southwest Airlines, Inc., has total operating revenues of $6.53 million
on total assets of $11.337 million. Their property, plant, and equipment,
including their ground equipment and other assets, are listed at a historical cost
of $11.921 million, while the accumulated depreciation and amortization
amount to $3.198 million. What are the airline’s total asset turnover
and fixed asset turnover ratios?
Operating revenues $ 6.53 million
Total assets $ 11.337 million
Property, Plant, & Equipment (historical cost) $ 11.92 million
Accumulated depreciation and amortization $ 3.198 million
Total asset turnover = Operating revenues/Total assets = $ 0.58
Fixed asset turnover = Operating revenues/Net fixed assets = 0.749
 
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Strategic Management Multiple Choice Questions

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SET#1 QUESTIONS

1. (p. 3) Which of the following is an element of a firm’s remote external environment?

A. Competition

B. Suppliers

C. Government agencies

D. Economic and social conditions

 

 

Difficulty: Easy

Learning Objective: 1

 

2. (p. 3) Which of the following is NOT a part of a firm’s immediate external environment?

A. Technological development

B. Competitors

C. Suppliers

D. Government agencies

 

 

Difficulty: Easy

Learning Objective: 1

 

3. (p. 3) The immediate external environment includes:

A. Competitors

B. S. B. U. s

C. Divisions

D. Management

 

 

Difficulty: Easy

Learning Objective: 1

 

 

 

4. (p. 3) The _______ comprises economic and social conditions, political priorities and technological developments, all of which must be anticipated, monitored, assessed and incorporated into the executive’s decision making.

A. Remote external environment

B. Task environment

C. Operating environment

D. Internal environment

 

 

Difficulty: Easy

Learning Objective: 1

 

5. (p. 3) The set of decisions and actions resulting in the formulation and implementation of plans designed to achieve a company’s objectives is defined as:

A. Strategic policy

B. Business policy

C. Strategic management

D. Tactics

 

 

Difficulty: Medium

Learning Objective: 2

 

6. (p. 3) Strategic management compromises nine critical tasks. Which of the following is NOT one of the tasks?

A. Development of annual objectives compatible with grand strategies

B. Assessment of the company’s external environment

C. Selection of a particular set of long-term objectives and grand strategies

D. Evaluate the success of the strategic process

 

 

Difficulty: Medium

Learning Objective: 2

 

 

 

7. (p. 4) Strategic management involves the _____, directing, _____ and controlling of a company’s strategy-related decisions and actions.

A. Financing; marketing

B. Planning; financing

C. Marketing; planning

D. Planning; organizing

 

 

Difficulty: Medium

Learning Objective: 2

 

8. (p.4) Large-scale, future-oriented plans, for interacting with the competitive environment to achieve company objectives refers to its

A. Strategy

B. Goals

C. Competitive analysis

D. Dynamic policies

 

 

Difficulty: Easy

Learning Objective: 2

 

9. (p. 4) A strategy is a company’s

A. Game plan

B. Pricing policy

C. Value statement

D. Long-term objective

 

 

Difficulty: Easy

Learning Objective: 2

 

 

 

10. (p. 4) A(n) _____ reflects a company’s awareness of how, when and where is should compete, against whom it should compete and for what purpose it should compete.

A. Vision

B. Organizational structure

C. Strategy

D. Long-term objective

 

 

Difficulty: Medium

Learning Objective: 2

 

11. (p. 4) Strategic issues require which level of management decisions?

A. Operative

B. Top

C. Front-line

D. Middle

 

 

Difficulty: Easy

Learning Objective: 2

 

12. (p. 5) Strategic decisions ostensibly commit the firm for

A. 1-2 years

B. The short term

C. 3-4 years

D. A long time, typically five years

 

 

Difficulty: Medium

Learning Objective: 2

 

13. (p. 4-5) Some business decisions are strategic and therefore deserve strategic management attention. Which of the following is one of the six strategic issue dimensions?

A. Requires front-line employee decisions

B. Is not likely to have a significant impact on long-term prosperity of the firm

C. Necessitates considering factors in the firm’s external environment

D. Is spontaneous

 

 

Difficulty: Medium

Learning Objective: 3

 

 

 

14. (p. 5) Which of the following applies to strategic issues?

A. Consider only the firm’s internal environment

B. Are future oriented

C. Concern allocation of insignificant amounts of company resources

D. Do not have long-term impact on the firm’s prosperity

 

 

Difficulty: Easy

Learning Objective: 3

 

15. (p. 5) Strategic decisions are based on what managers _____, rather than on what they _____.

A. Forecast; know

B. React to; anticipate

C. Know; forecast

D. Compromise with; analyze

 

 

Difficulty: Hard

Learning Objective: 3

 

16. (p. 5) In a turbulent and competitive free enterprise environment, a firm will succeed only if it takes a(n) ____ stance towards change.

A. Reactive

B. Anti-regulatory or anti-government

C. Proactive

D. Vision and not mission

 

 

Difficulty: Medium

Learning Objective: 3

 

 

 

17. (p. 6) Typically how many strategic decision levels are in the corporate decision-making hierarchy?

A. 5 or more

B. 4

C. 3

D. 2

 

 

Difficulty: Easy

Learning Objective: 4

 

18. (p. 6) To a large extent, attitudes at the corporate level reflect the concerns of

A. Stockholders and society at large

B. Top managers

C. The CEO

D. The federal government

 

 

Difficulty: Medium

Learning Objective: 4

 

19. (p. 6) The top of the decision-making hierarchy comprises all of these EXCEPT

A. Board of directors

B. Front-line managers

C. The CEO

D. Administrative officers

 

 

Difficulty: Easy

Learning Objective: 4

 

20. (p. 6) In a multi-business firm, ______ -level executives determine the businesses in which the firm should be involved.

A. Business

B. Functional

C. Corporate

D. Operative

 

 

Difficulty: Medium

Learning Objective: 4

 

 

 

21. (p. 6) At Office Supply, Inc., ____ -level managers would be responsible for determining whether the company should be involved in home furnishings or electronic appliance businesses, where as ____ -level managers would be responsible for determining how the firm will compete in the selected product-market arena.

A. Business; corporate

B. Corporate; functional

C. Functional; business

D. Corporate; business

 

 

Difficulty: Hard

Learning Objective: 4

 

22. (p. 6) In the middle of the decision-making hierarchy is the _____ level.

A. Corporate

B. Functional

C. Business

D. Strategic

 

 

Difficulty: Medium

Learning Objective: 4

 

23. (p. 6) Who determines the basis on which a company can compete in the selected product-market arena?

A. Functional-level strategic managers

B. Corporate-level strategic managers

C. Business-level strategic managers

D. Operational managers supervising operative

 

 

Difficulty: Medium

Learning Objective: 4

 

 

 

24. (p. 6) Which of these managers tries to identify and secure the most profitable and promising market segment?

A. Functional managers

B. Corporate managers

C. Business managers

D. Operative

 

 

Difficulty: Medium

Learning Objective: 4

 

25. (p. 6) The functional level of decision making is characterized by:

A. The board of directors deriving corporate goals

B. Managers of product, geographic and functional areas

C. The CEO developing a company profile

D. Business managers interpreting the mission into operational objectives

 

 

Difficulty: Medium

Learning Objective: 4

 

26. (p. 6) Which strategic level is typically responsible for developing annual objectives and short-term strategies?

A. Functional level

B. Corporate level

C. Business level

D. Board of Directors level

 

 

Difficulty: Medium

Learning Objective: 4

 

27. (p. 6) Which of the following is NOT a level in the decision-making hierarchy of a firm?

A. Business

B. Corporate

C. Operative

D. Functional

 

 

Difficulty: Medium

Learning Objective: 4

 

 

 

28. (p. 6) Functional managers are typically responsible for which of the following?

A. Annual objectives

B. Tactics

C. Corporate goals

D. Mission

 

 

Difficulty: Medium

Learning Objective: 4

 

29. (p. 6) Whereas corporate and business-level managers center their attention on _____, managers at functional-level center their attention on ____.

A. Operational issues; strategic issues

B. Doing things right; doing the right things

C. Entrepreneurial mode; adaptive mode

D. Doing the right things; doing things right

 

 

Difficulty: Hard

Learning Objective: 4

 

30. (p. 6) Decisions at which level of management tend to be more value-oriented and conceptual?

A. Functional

B. Corporate

C. Operative

D. Business

 

 

Difficulty: Medium

Learning Objective: 4

 

31. (p. 7) Dividend policies are decided at the

A. Corporate level

B. Business level

C. Functional level

D. Operational level

 

 

Difficulty: Medium

Learning Objective: 4

 

 

 

32. (p. 7) Which level of decisions encompasses greater risk, cost and profit potential?

A. Business

B. Lower echelon

C. Corporate

D. Functional

 

 

Difficulty: Medium

Learning Objective: 4

 

33. (p. 8) Corporate-level decisions are characterized by:

A. Decreased risk

B. Doing things right

C. Short-time horizons

D. Greater profit

 

 

Difficulty: Hard

Learning Objective: 4

 

34. (p. 7) Decisions concerning plant location, distribution channels, geographic coverage and market segmentation are typically made at:

A. The corporate level

B. The business level

C. The functional level

D. The front-line operational level

 

 

Difficulty: Medium

Learning Objective: 4

 

35. (p. 8) The degree to which participation, responsibility, authority and discretion in decision-making are specified is called:

A. Informality

B. Formality

C. Functional tactic

D. Dynamic mode

 

 

Difficulty: Medium

Learning Objective: 4

 

 

 

36. (p. 8) Which of these is usually positively correlated with the cost, comprehensiveness, accuracy and success of planning?

A. Greater formality

B. Functional structure

C. Organizational matrix

D. Functional tactics

 

 

Difficulty: Medium

Learning Objective: 4

 

37. (p. 8) According to Henry Mintzberg, very large firms typically use the _____ mode of strategic management.

A. Adaptive

B. Entrepreneurial

C. Informal

D. Planning

 

 

Difficulty: Medium

Learning Objective: 4

 

38. (p. 8) Henry Mintzberg identified a mode which he associates with medium-sized firms in relatively stable environments. This is referred to as a(n) ____ mode.

A. Entrepreneurial

B. Adaptive

C. Business

D. Planning

 

 

Difficulty: Medium

Learning Objective: 4

 

 

 

39. (p. 8) Firms that are basically under the control of a single individual and produce a limited number of products/services are referred to as following ______ mode.

A. Entrepreneurial

B. Intrapreneurial

C. Managerial

D. Corporate

 

 

Difficulty: Medium

Learning Objective: 4

 

40. (p. 8) The informal, intuitive and limited approach to strategic management associated with owner-managers of smaller firm refers to the ____ mode of formality, according to Mintzberg.

A. Entrepreneurial

B. Functional

C. Planning

D. Adaptive

 

 

Difficulty: Easy

Learning Objective: 4

 

41. (p. 8) The planning mode refers to the

A. Strategic formality associated with the large firms that operate under a comprehensive, formal planning system

B. Strategic formality associated with medium-sized firms that emphasize the incremental modification of existing competitive approaches

C. Strategic formality associated with global firms that emphasize cultural value systems

D. Informal, intuitive and limited approach to strategic management with owner-manager of smaller firms

 

 

Difficulty: Medium

Learning Objective: 4

 

 

 

42. (p. 8) According to Mintzberg, the adaptive mode refers to

A. Strategic formality associated with the large firms that operate under a comprehensive, formal planning system

B. Strategic formality associated with medium-sized firms that emphasize the incremental modification of existing competitive approaches

C. Strategic formality associated with global firms that emphasize cultural value systems

D. Informal, intuitive and limited approach to strategic management with owner-manager of smaller firms

 

 

Difficulty: Medium

Learning Objective: 4

 

43. (p. 8) Which of these is NOT a mode of formality identified by Mintzberg?

A. Adaptive

B. Planning

C. Functional

D. Entrepreneurial

 

 

Difficulty: Easy

Learning Objective: 4

 

44. (p. 9) The ideal strategic management team includes decision makers from

A. All three company levels (corporate, business and functional)

B. Just the functional level since they are closest to the customers

C. Just the corporate and business levels given that they focus on doing the right thing

D. Just the top management since they understand the big picture

 

 

Difficulty: Medium

Learning Objective: 4

 

 

 

45. (p. 8) Managers at the _____ level typically have principal responsibilities for developing environmental analysis and forecasting, establishing business objectives and developing business plans prepared by staff groups.

A. Corporate

B. Functional

C. Operational

D. Business

 

 

Difficulty: Medium

Learning Objective: 4

 

46. (p. 9) When the dominance of the CEO approaches autocracy, the effectiveness of the form’s strategic planning and management processes are likely to:

A. Enhance strategic planning but diminish its processes

B. Be greatly enhanced

C. Have no effect

D. Be diminished

 

 

Difficulty: Medium

Learning Objective: 5

 

47. (p. 11) Which of these is NOT true about the behavioral effect of strategic management?

A. Strategy formulation activities enhance the firm’s ability to prevent problems

B. Resistance to change is reduced

C. Gaps and overlaps in activities among individuals and groups are increased to ensure the checks and balance

D. The employee involvement is strategy formulation improves their understanding of the productivity reward relationship in every strategy plan

 

 

Difficulty: Hard

Learning Objective: 5

 

 

 

48. (p. 11) Managers must be trained to guard against all of the following types of unintended negative consequences of involvement in strategy formulation EXCEPT

A. Managers must be trained to minimize the negative impact on operational responsibilities by scheduling their duties to allow the necessary time for strategic activities

B. Managers must be trained to limit their promises to performance that the decision makers and their subordinates can deliver

C. Managers must be trained to anticipate and respond to the disappointment of participating subordinates over unattained expectations

D. Managers must be trained to disregard the productivity-reward relationship since strategy implementation makes it invalid

 

 

Difficulty: Hard

Learning Objective: 5

 

49. (p. 11) Which of the following is a major function of the strategic management model?

A. It helps make profits for the firm

B. It helps in identifying key issues faced by the firm

C. It helps in deciding which products to sell

D. It depicts the sequence and relationships of the major components of the strategic management process

 

 

Difficulty: Medium

Learning Objective: 5

 

50. (p. 13) Social responsibility is a critical consideration for a company’s strategic decision makers since

A. Stockholders demand it

B. The mission statement must express how the company intends to contribute to the societies that sustain it

C. It increases a company’s profits

D. It helps make decisions

 

 

Difficulty: Medium

Learning Objective: 5

 

 

 

51. (p. 13) Analysis of the quantity and quality of the company’s financial, human and physical resources is a part of

A. Internal analysis

B. Mission statement

C. External environment analysis

D. Corporate goals

 

 

Difficulty: Easy

Learning Objective: 5

 

52. (p. 13) The external environment consists of:

A. The operating environment

B. Managers

C. Employees

D. Owners

 

 

Difficulty: Easy

Learning Objective: 5

 

53. (p. 13) Which one of the following is NOT an interactive segment of a firm’s external environment?

A. Functional

B. Remote

C. Industry

D. Operating

 

 

Difficulty: Medium

Learning Objective: 5

 

 

 

54. (p. 12) Description of the company’s product, market and technological areas of emphasis is contained in the

A. Assessment of the external environment

B. Company profile

C. Company mission

D. Interactive opportunity analysis

 

 

Difficulty: Easy

Learning Objective: 5

 

55. (p. 13) The results that an organization seeks over a multiyear period are its

A. Generic strategies

B. Grand strategies

C. Mission statements

D. Long-term objectives

 

 

Difficulty: Easy

Learning Objective: 5

 

56. (p. 13) The doubling of EPS within 5 years with increases in each intervening year is called a(n):

A. Long-term goal

B. Long-term objective

C. Short-term goal

D. Short-term objective

 

 

Difficulty: Hard

Learning Objective: 5

 

57. (p. 13-14) The difference between long-term and short-term objectives is principally:

A. Greater attainability

B. Greater flexibility

C. Greater measurability

D. Greater specificity

 

 

Difficulty: Hard

Learning Objective: 5

 

 

 

58. (p. 14) Grand strategies include:

A. Market turnaround

B. Vertical diversification

C. Conglomerate integration

D. Concentric diversification

 

 

Difficulty: Medium

Learning Objective: 5

 

59. (p. 14) Which of the following is an example of a grand strategy?

A. Decentralization

B. Policy making

C. Conglomerate integration

D. Innovation

 

 

Difficulty: Hard

Learning Objective: 5

 

60. (p. 14) Long-term objectives are principally attained through:

A. Annual goals

B. Functional strategies

C. Short-term goals

D. Grand strategy

 

 

Difficulty: Hard

Learning Objective: 5

 

61. (p. 14) The minimum equity position required for all new McDonald’s franchises is an example of:

A. A goal

B. A procedure

C. A policy

D. An objective

 

 

Difficulty: Medium

Learning Objective: 5

 

 

 

62. (p. 14) The general plan of major actions through which a firm intends to achieve is long-term objectives is called its:

A. Corporate plan

B. Long-term goal

C. Grand strategy

D. Mission

 

 

Difficulty: Easy

Learning Objective: 5

 

63. (p. 14) Broad, precedent-setting decisions that guide or substitute for repetitive or time-sensitive managerial decision making are called

A. Goals

B. Strategies

C. Objectives

D. Policies

 
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