MGT498 Week 2 – Practice: Week 2- Quiz


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MGT498 Week 2 – Practice: Week 2- Quiz

1. Alexander works for Salamon Telecommunications Inc., a large corporation. His work requires him to travel extensively and, as a result, he spends much time working remotely. Taking advantage of the situation, Alexander often works on personal projects instead of company projects. Salamon Telecommunications has difficulty checking on Alexander’s work because he has no supervision in many of the places where he travels. This scenario exemplifies a(n)

outside director.

poison pill.

inverse selection.

moral hazard.

2. If a company has 25 million shares outstanding, and each share is traded at $400, the ______ is $10 billion.

market capitalization

total return to shareholders

customer lifetime value

return on revenue

3. Which of the following is a recommended guideline for the composition of a board of directors to implement corporate governance?

A company’s board of directors should not contain more than ten members.

Fortune 500 companies should only hire directors from each other’s companies.

Close to two-thirds of the board of directors should consist of outside directors.

The CEO is the best person to act as the chairman or chairwoman of the board.

4. Which of the following is one of the implications of information asymmetry between principals and agents?

Principals tend to be better informed than the agents, and thus will avoid delegating decision-making authority to their agents.

The information comes to all stakeholders simultaneously, which is disadvantageous to the stockholders.

Agents can pass on the information to select principals who can trade stocks based on this information.

Outsiders, such as shareholders, are the first to learn about important developments, before the information is released to the employees.

5. Michael Porter is in favor of the shared value creation framework because he believes that it

will help to pit economic and societal needs in a trade-off.

is the duty of a company to focus on benefitting shareholders who have the most legitimate claim on profits.

will not only allow companies to gain and sustain a competitive advantage, but it will also reshape capitalism and its relationship to society.

is the responsibility of the company to focus on creating profits and nothing else.

6. Global Reach Corp. is a public company whose shares are currently trading in the market at $150 each. The company manufactures smartphones at the cost of $300 per unit and sells them in the market for $500 each. What is the company’s producer surplus?





7. Though the microwaves manufactured by Emergo Inc. and Sensation Electronics Inc. sell at the same price of $600 per unit, the economic value created by Emergo Inc. is more than that of Sensation Electronics Inc. In the context of this scenario, which of the following statements is true?

Emergo and Sensation Electronics have achieved a competitive parity.

Emergo has a relative cost advantage over Sensation Electronics.

Sensation Electronics has differentiated its products more than Emergo Inc. has.

Sensation Electronics has been able to create more producer surplus for itself than Emergo.

8. Why did the San Francisco’s Metro Transit Authority (MTA) order Uber to cease and desist?

MTA claimed that Uber was attempting to create a monopoly on taxi services.

MTA argued that Uber failed to comply with the emission standards for vehicles.

MTA argued that Uber was operating a taxi service without proper licensing.

MTA claimed that Uber failed to uphold its promise to give part of its profit to MTA.

9. Which of the following is a disadvantage of the balanced scorecard approach to measure firm performance?

It fails to allow managers and executives to find a balance between financial and strategic goals.

It provides only limited guidance about which performance metrics to choose.

It only relies on an internal view of the firm, ignoring the external view.

It fails to allow managers to align their different perspectives to create a more focused corporation overall.

10. When using the balanced scorecard approach to assess a firm’s performance, which of the following is not a key question that managers need to answer?

How do shareholders view us?

How do we create value?

What intangible assets do we need?

How do customers view us?
11. Red Hot Inc. and Maverick Cycles Inc. are two competing motorcycle companies. While Red Hot’s Cost of goods sold/Revenue is 63.4 percent, the Cost of goods sold/Revenue of Maverick Cycles is 54.2 percent. What do you infer from this financial data?

Red Hot is less efficient than Maverick Cycles in producing goods.

Red Hot is able to command a greater price premium for its products than Maverick Cycles.

Red Hot has a higher profit margin than Maverick Cycles.

Red Hot and Maverick Cycles have achieved a competitive parity.

12. Which of the following best exemplifies information asymmetry at Amber Narwhal Inc., a publicly traded software development firm?
The board of directors at Amber Narwhal makes significant structural changes to the organization and waits several weeks before issuing a press release about it.

The new CEO of Amber Narwhal implements a new strategy that focuses on social initiatives.

The lower-level employees at Amber Narwhal are often unaware of what happens in boardroom meetings.

The shareholders of Amber Narwhal subscribe to Milton Friedman’s views of capitalism, while the agents subscribe to Michael Porter’s views.

13. The sum of consumer surplus and producer surplus for a good or service equals the

reservation price.

firm’s profit.

total return to shareholders.

economic value created.

14. Which of the following is a problem that corporate governance seeks to address?

the principal-agent problem

limited liability for investors

the Ecomagination problem

shared-value creation

15. Which of the following descriptions best exemplifies adverse selection?

A research scientist uses the organization’s resources to conduct personal research.

A manager cannot ascertain the contributions of individual team members in team production.

An employee spends time on social networking sites during work hours.

An interview candidate lists his qualifications in chronological order.

16. Quick Connect is an instant messaging mobile application. Users have access to a basic version with limited message recipients for free, but they have to pay a fee to have unlimited message recipients or to use advanced features. Which of the following business models does this best illustrate?





17. One of the major differences between inside directors and outside directors of a company is that outside directors are more likely to

be full-time professionals at the company.

provide the board with information regarding the company’s performance.

watch out for the interests of the shareholders of the company.

align interests with the management and CEO of the company.

18. The tenet behind the triple bottom line is that

a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.

a firm’s primary objective should be increasing the total returns to its shareholders.

a firm’s return on revenue can be broken down into three ratios: COGS/Revenue, R&D/Revenue, and SG&A/Revenue.

a firm should solely focus on increasing the economic value created for its customers.

19. A leveraged buyout (LBO)

requires the buyer to disclose financial statements of the company once it becomes private.

is based on an expectation that the new private owners will not restructure the company at any cost.

changes the ownership structure of a company from public to private.

forces shareholders to sell their shares at lower prices than the actual value.

20. What, according to Greg Smith, was the cause for the change in ethical climate within Goldman Sachs?

The company went public and began looking at clients and itself as counter parties to a transaction.

The company went from caring about customers to creating an inflated share price at any cost.

The company had earned a reputation that it could not live up to in the long run.

The company acquired Abacus, and the conflicting cultures prompted Goldman Sachs to adopt a new hybrid culture.