Question 1

Benchmarks represent 'best practices', and can be derived from either inside or outside the organization.

Accepted Answer

Benchmarks can be derived from either inside or outside the organization, and they represent the best practices that should be adopted by the organization.

Question 2

Which of the following statements is TRUE?

Accepted Answer

Governments in some countries may impose controls and limit selling prices of a company's products. This can affect a company's profitability and competitiveness in that country. The other statements are not true. The economic, legal, political, social, and cultural environments vary greatly across countries, the availability of materials and skilled labor can differ significantly, comparing performance of divisions across different countries can be challenging due to differences in currency, accounting practices, and business culture, and nonfinancial performance measures can be useful when comparing performance of divisions in different countries as some aspects of performance may not be easily quantifiable in financial terms.

Question 3

________ and ________ would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.

Accepted Answer

Custom duties and cultural environment are uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.

Question 4

Comparing the performance of divisions of a multinational company operating in different countries is difficult because of the differences in economic, legal, political, social and cultural environments.

Accepted Answer

The statement is true because the performance of divisions can be influenced by various factors that differ from one country to another. These differences can make it challenging to compare the performance of different divisions on an equal footing.

Question 5

________ describes contexts in which, once risk is shared, the individual fails to make as much effort to avoid harm as when risk was not shared.

Accepted Answer

This scenario describes moral hazard, where an individual is more likely to take risks or engage in reckless behavior if the potential consequences or costs of that behavior are shared with others, such as an insurance company or a partner in a business. This can lead to a lack of effort in avoiding harm, as the individual knows that they will not bear the full burden of the negative outcomes. Goal congruence, management compensation, incentive compensation, and executive compensation do not directly describe this phenomenon.

Question 6

Divisions operating in different countries often record performance is different currencies.

Accepted Answer

It is true that divisions operating in different countries often record performance in different currencies due to differences in exchange rates and local currencies. This can impact financial reporting and analysis.

Question 7

The Shamrock Corporation manufactures flower pots in Canada and Ireland.The operations are organized as decentralized divisions.The following information is available for the year just ended:
  The exchange rate at the time of Shamrock's investment (the end of the previous year)in Ireland was $1.35 Canadian to 1.00 Euro.During the year, the Euro weakened steadily in value and the exchange rate at the end of the current year was 1.24 Canadian = $1.00 Euro.The average exchange rate during the year was 1.28 Canadian = $1.00 Euro.Required:
a.Calculate the Canadian Division's ROI for last year based on dollars.
b.Calculate the Irish Division's ROI for last year based on Euros.
c.Which of Shamrock's two divisions earned the better ROI? Explain your answer, complete with supporting calculations showing the Irish Division ROI in Canadian dollars.

Accepted Answer

The answer of The Shamrock Corporation manufactures flower pots in...

Question 8

Moral hazard describes contexts in which, once risk is shared, the individual fails to make as much effort to avoid harm as when risk was not shared.

Accepted Answer

This is the definition of moral hazard. Shared risk can lead to decreased effort to avoid harm because the consequences of that harm are now shared.

Question 9

An important consideration in designing compensation arrangements is the tradeoff between creating incentives, and reducing risk.

Accepted Answer

The answer of An important consideration in designing compensation arrangements...

Question 10

Current cost is defined as the cost of purchasing an asset today identical to the one currently held.Required:
Discuss why this is a useful concept and explain some difficulties in its use.

Accepted Answer

The answer of Current cost is defined as the cost...

Question 11

The Irnakk Corporation manufactures iPod covers in Canada and China.The operations are organized as decentralized divisions.The following information is available for the year just ended:
  The exchange rate at the time of Irnakk's investment (the end of the previous year)in China was 7.5 Chinese yuan = $1 Canadian.During the year, the yuan declined steadily in value and the exchange rate at the end of the current year was 8.5 yuan = $1 Canadian.The average exchange rate during the year was 8 yuan = $1 Canadian.Required:
a.Calculate the Canadian Division's ROI for last year based on dollars.
b.Calculate the Chinese Division's ROI for last year based on yuan.
c.Which of Irnakk's two divisions earned the better ROI? Explain your answer, complete with supporting calculations showing the China Division ROI in Canadian dollars.

Accepted Answer

The answer of The Irnakk Corporation manufactures iPod covers in...

Question 12

The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.

Accepted Answer

The answer of The only criticism of team-based compensation is...

Question 13

If a company is a multinational company with operations in several different countries, one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to

Accepted Answer

Restating the results of all operations in a common currency, such as dollars, allows for comparability by eliminating the effects of exchange rate fluctuations.

Question 14

A multinational corporation established a division in a South American country as a subsidiary corporation, with an initial investment in total assets of 13 million CU's (the local currency is CU's), which cost the company $3,250,000 Canadian at the time.The company sent an experienced manager to run the division, and gave her a target of 13% required rate of return, promising a bonus if this was met and/or exceeded.After one year, the subsidiary manager was pleased to report a 20% ROI.You have been able to determine the following data pertaining to the subsidiary:
  Required:
a.Calculate the subsidiary's income in CU's.
b.Calculate the subsidiary's return on investment in Canadian dollars.
c.Calculate the subsidiary's residual income in Canadian dollars.

Accepted Answer

The answer of A multinational corporation established a division in...

Question 15

A multinational corporation established a division in Ireland as a subsidiary corporation, with an initial investment in total assets of 13 million €'s, which cost the company $19,240,000 Canadian at the time.The company sent an experienced manager to run the division, and gave her a target of 12% required rate of return, promising a bonus if this was met and/or exceeded.After one year, the subsidiary manager was pleased to report a 15% ROI.You have been able to determine the following data pertaining to the subsidiary:
  Required:
a.Calculate the subsidiary's income in €'s.
b.Calculate the subsidiary's return on investment in Canadian dollars.
c.Calculate the subsidiary's residual income in Canadian dollars.

Accepted Answer

The answer of A multinational corporation established a division in...

Question 16

If the exchange rate at the end of the a foreign subsidiary's first year was 5 Fidgets to 1 Canadian dollar, and if it was 8 Fidgets to 1 Canadian dollar at the end of the second (current)year, what exchange rate should be used to convert total assets if we want to calculate the company's ROI in Canadian dollars?

Accepted Answer

The answer of If the exchange rate at the end...

Question 17

The following data are available for a manufacturing business started as a new company four years ago when the construction cost index was 110:
  * = "of long-term assets at historical cost"
Required:
Calculate the return on investment and the residual income for year five based on current cost.The company's required rate of return is 12%.

Accepted Answer

The answer of The following data are available for a...

Question 18

Good performance measures do not change significantly with the manager's performance but change with factors that are beyond the manager's control.

Accepted Answer

Good performance measures should reflect the manager's performance and not be significantly influenced by factors beyond their control.

Question 19

It is more cost-efficient for owners to bear risk than managers, because managers demand a premium (extra compensation)for bearing risk.

Accepted Answer

Managers typically receive a salary or bonus for their work, and if they also bear risk on behalf of the company, they may demand additional compensation for that added responsibility. Owners, on the other hand, are already invested in the company and have a vested interest in managing risk to protect their investment, so there is no need for them to demand a premium for bearing risk. Therefore, it is more cost-efficient for owners to bear risk than to pay managers to do so.

Question 20

Well-designed compensation plans for executives focus on risk and long-term incentives.

Accepted Answer

The answer of Well-designed compensation plans for executives focus on...

Quiz 22: Multinational Performance Measurement and Compensation