UGC NET Paper 2 Mock Test - 4 (Management) - UGC NET MCQ

The term 'Business Ethics' refers to the system of moral principles and rules of the conduct applied to business. Anything dealing with ethics in business is good, bad or both to the business gains.

Creating ethical standards in the workplace is the foundation for happy employees and satisfied customers. When ethical standards are set forth clearly and without ambiguity, fewer human resources issue arise, morale picks up and productivity increases. The ethical standards in the workplace are partially set by laws and regulations and partially by the moral standards the company seeks to live by. If a company is seeking ethical standard, it must purport to public disclosure and publishing.

A business start-up is a company that is in the first stage of its operations. These companies are often initially bankrolled by their entrepreneurial founders as they attempt to capitalise on developing a product or service for which they believe there is a demand. A business start-up cannot afford CSR at the first instance due to lack of resources.

Net Income Approach for capital structure was presented by David Durand. The theory suggests increasing value of the firm by decreasing the overall cost of capital which is measured in terms of Weighted Average Cost of Capital. This can be done by having a higher proportion of debt, which is a cheaper source of finance compared to equity finance.

Net operating income approach for capital structure was given by Ezta Soloman. This approach for capital structure believes that the value of a firm is not affected by the change of debt component in the capital structure. It assumes that the benefit that a firm derives by infusion of debt is negated by the simultaneous increase in the required rate of return by the equity shareholders.

The irrelevance proposition theorem is a theory of corporate capital structure that posits financial leverage does not affect the value of a company, if income tax and distress costs are not present in the business environment. The irrelevance proposition theorem was developed by Merton Miller and Franco Modigliani.

FRICTO is an acronym for flexibility (F), risk (R), income (I), control (C), timing (T), and other (O). These represent important factors that affect the debt-equity mix decision in a company. FRICTO analysis for capital structure was developed by Robert Bruner.

The Neoclassical Theory is the extended version of the classical theory, wherein the behavioural sciences get included into the management. Neoclassical organisation theory emphasises flat structure of organisation. A flat organisation refers to an organisation structure with few or no levels of management between management and staff level employees. The flat organisation supervises employees less while promoting their increased involvement in the decision-making process.

Organisational behaviour reflects the behaviour of the people and management all together, it is considered as field study not just a discipline. There are four different types of models in OB. We will throw some light on each of these four models.

Autocratic Model: The root level of this model is power with a managerial orientation of authority. The employees in this model are oriented towards obedience and discipline. They are dependent on their boss. The employee requirement that is met is subsistence.

Custodial Model: The root level of this model is economic resources with a managerial orientation of money. The employees in this model are oriented towards security and benefits provided to them. They are dependent on the organisation. The employee requirement that is met is security.

Supportive Model: The root level of this model is leadership with a managerial orientation of support. The employees in this model are oriented towards their job performance and participation. The employee requirement that is met is status and recognition. The performance result is awakened drives.

Collegial Model: The root level of this model is partnership with a managerial orientation of teamwork. The employees in this model are oriented towards responsible behaviour and self-discipline. The employee requirement that is met is self-actualisation. The performance result is moderate zeal.

Transactional leadership is a style of leadership in which leaders promote compliance by followers through both rewards and punishments.

Transformational leadership is a leadership style in which leaders try changing organisation by creating and communicating a vision. The organisation encourages, inspires and motivates employees to innovate and create change that will help grow and shape the future success of the company.

Charismatic leadership is basically the method of encouraging particular behaviours in others by way of influencing, dint of personality and charm. Charismatic leaders motivate followers to get things done or improve the way certain things are done.

Situational leadership refers to when the leader or manager of an organisation must modify his style to fit the development level of the followers he is trying to influence. With situational leadership, it is up to the leader to change his style, not the follower to adapt to the leader's style.

Both the statements are incorrect because:

(1) Time study is a structured process of directly observing and measuring human work using a timing device to establish the time required for completion of the work by a qualified worker when working at a defined level of performance. It follows the basic procedure of systematic work measurement of
(a) analysis of the work into small, easily-measurable components or elements
(b) measurement of those components
(c) synthesis from those measured components to arrive at a time for the complete job.

(2) Work measurement is the application of techniques which are designed to establish the time for an average worker to carry out a specified manufacturing task at a defined level of performance. It is concerned with the duration of time it takes to complete a work task assigned for a specific job. It means the time taken to complete one unit of work should be done on a complete basis under certain circumstances which takes into account of accountant's time.

V. A. Graicuna's, a French management consultant, analysed subordinate-supervisor relations and classified these relationships into three types:
(a) Direct Single Relationships between the senior and each of his subordinates individually
(b) Direct Group Relationships between the manager and each of the possible combinations of subordinates
(c) Cross Relationships between each of the groups of subordinates
According to Graicuna's formula n (n - l), if a superior has three subordinates, the number of cross-relationships would be six.

The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 provides for the institution of compulsory Provident Fund and Deposit-Linked Insurance Fund for the benefit of the employees in factories and other establishments. If an employee desires to pay more than the minimum required contribution under the Act, then employer is under no obligation to pay the additional contribution.

A job specification is related to 'Standard of Personnel'. It is a written statement of educational qualifications, specific qualities, level of experience, physical, emotional, technical and communication skills required to perform a job, responsibilities involved in a job and other unusual sensory demands. It also includes general health, mental health, intelligence, aptitude, memory, judgement, leadership skills, emotional ability, adaptability, flexibility, values and ethics, manners and creativity, etc.

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates the expected return of an asset based on its beta and expected market returns. Beta is also known as the beta coefficient.

Dividend policy of a company sets the guidelines to be followed while deciding the amount of dividend to be paid out to the shareholders. The company needs to adhere to the dividend policy while deciding the proportion of earnings to be distributed and the frequency of the distribution. The following are the various factors/determinants that impact the dividend policy of a company:

• Investment opportunities for the company
• Expectations of the shareholders of the company
• Legal and financial restrictions for the company

Risk analysis of capital investment is the most complex and controversial area in finance. Risk analysis is so important to the capital budgeting process because managers need the appropriate data to make decisions on the current and future assets of the organisation. To ensure that the company is not overwhelmed by bad decisions, the risk analysis is a tool that gives the manager the ability to mitigate risk. Capital expenditure decisions are irreversible because it involves huge cash outlay and if they are reversible they involve huge costs.

The firm's investment and financing decisions are unavoidable and continuous. In order to make them rational, the firm must have a goal. Two financial objectives predominate amongst many objectives.
These are:
1. Profit maximisation
2. Shareholders' Wealth Maximisation (SWM)
Shareholders' Wealth Maximisation (SWM) is an appropriate and operationally feasible financial management goal and not the profit maximisation.

In corporate finance, the agency problem usually refers to a conflict of interest between a company's management and the company's stockholders. The manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximise shareholders' wealth even though it is in the manager's best interest to maximise his own wealth.

The ordinal utility concept was first introduced by Pareto in 1906. An ordinal utility function is a function representing the preferences of an agent on an ordinal scale.
When a certain good is regarded by the consumer to be an inferior good, he will tend to reduce its consumption as a result of the increase in his income. But it is possible that there may be inferior goods for which the income effect of a change in price is larger in magnitude than the substitution effect. This is the case of Giffen goods for which the Marshallian law of demand does not hold good.
An indifference curve always slopes negatively. It shows a combination of two goods that give a consumer equal satisfaction and utility, thereby making the consumer indifferent.
Inseparation of income and substitution effects in demand curve describes that the income effect expresses the impact of increased purchasing power on consumption, while the substitution effect describes how consumption is impacted by changing relative income and prices.

The CAPM was developed in the early 1960s by William Sharpe (1964), Jack Treynor (1962), John Lintner (1965) and Jan Mossin (1966). The CAPM is based on the idea that not all risks should affect asset prices.

Michael Porter developed three generic strategies that a company could use to gain competitive advantage, back in 1980. These three are: cost leadership, differentiation and Niche Strategy.

The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return and risk of investing in a security. The cost of external equity can be most appropriately computed as per the capital asset pricing model. It shows that the expected return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security.

In 1987, the Canadian management scientist Henry Mintzberg distinguished five visions of strategy for organisations. He calls them the 5 Ps of strategy. They stand for Plan, Pattern, Position, Perspective and Ploy. These five components allow an organisation to implement a more effective strategy.

Attributes or benefits that consumers strongly associate with a brand, positively evaluate, and believe they could not find to the same extent with a competitive brand is known as points-of-difference. Differentiation is the way in which the goods or services of a company differ from its competitors. Indicators of the point of difference's success would be increased with customer benefit and brand loyalty.

The broad environment consists of six components: demographic environment, economic environment, natural environment, technological environment, political-legal environment, and social-cultural environment. The forces of these environments can have a major impact on the factors in the micro environment.

The retrenchment strategy is adopted when an organisation aims at reducing its one or more business operations with the view to cut expenses and reach to a more stable financial position. When an organisation's survival is threatened and it is not competing effectively, retrenchment strategies are often needed. There are three types of retrenchment strategies:

(1) Turnaround: This is a retrenchment strategy followed by an organisation when it feels that the decision made earlier is wrong and needs to be undone before it damages the profitability of the company.
(2) Divestment: This strategy involves selling the business or setting it up as a separate corporation.
(3) Liquidation: This strategy involves closure of business which is no longer profitable.

Hence, only (a), (c) and (d) are correct.

The type of marketing that is the most recent to emerge is social marketing. Social marketing is the use of commercial marketing principles and techniques to improve the welfare of people and the physical, social and economic environments in which they live. It is a carefully planned, long-term approach to changing human behaviour.

For marketing electronic goods, a firm normally follows penetration pricing strategy. Penetration price is known as charging lowest price for the new product. This aims to foster sales, capture market share, utilise full capacity and economies of scale in productive process and keep the competitors away from the market.

Penetration price policy can be adopted in the following circumstances:

(i) There is very high price elasticity of demand.
(ii) There are substantial cost savings due to enhanced production process.
(iii) By nature, the product is acceptable to the mass of consumers.
(iv) There is no strong patent protection.

Business level managers are the managers for a particular business line in the organisation, for example finance, marketing and production departments. Business level managers translate the strategies from corporate level management into actions at the business level. Business level managers are responsible for formulating the strategies to achieve the organisational goals.

Predatory pricing is the illegal act of setting prices low in an attempt to eliminate the competition. Predatory pricing violates antitrust law, as it makes markets more vulnerable to a monopoly. Such pricing was introduced by Competition Commission of India (CCI) in India.

Cognitive dissonance is a consumer buying decision process. It is the state of mind that holds opposing, and even irreconcilable ideas, at the same time.

Diffusion of innovations is a theory that seeks to explain how, why, and at what rate new ideas and technology spread. This theory was given by Everett M. Rogers in 1962.

'Marketing myopia' is a term coined by Theodore Levitt. A business suffers from marketing myopia when a company views marketing strictly from the standpoint of selling a specific product rather than from the standpoint of fulfilling customer needs.

Administrative Entrepreneurship is centered around administrative techniques and functions. It gives a new option to handle prevailing or future situations in a more effective way that provides advantages and a competitive edge. Total quality management, job redesigning, new techniques of doing things, participative management or management by consensus are a few of the examples of administrative entrepreneurship that increase overall organisational efficiency and that nukes the firm successful and sustainable in the competitive market environment.

Product-oriented layouts are organised around products or families of similar high-volume, low-variety products. A product layout is where the equipment, tools, and machines are located according to how a product is made. An automated car wash is a product-oriented approach that seeks the best personnel and machine utilisations in repetitive or continuous production.

Sampling plan is a technique of statistical quality control used for product control. A sampling plan is a term widely used in research studies that provide an outline on the basis of which research is conducted. It tells which category is to be surveyed, what should be the sample size and how the respondents should be chosen out of the population.