8005 Exam Questions and Answers

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GHY has two subsidiaries. GHY-Motor manufactures car engines and GHY-Build designs and assembles cars. In the car industry it is common for manufacturers to buy parts, including engines, from other manufacturers.
GHY has granted GHY-Motor and GHY-Build full autonomy. GHY-Build is considering using an engine from another company for a new model that it is designing. GYY-Motor has a suitable engine, but it charges more than GHY-Build's preferred supplier.
Which of the following statements is correct? Select ALL that apply.
A. There could be significant non-financial issues associated with GHY-Build's decision to buy another engine.
B. Parent companies should never grant subsidiaries full autonomy on matters such as intra-group sales.
C. GHY should consider permitting GHY-Motor to charge part of the selling price on engines sold to GHY- Build to head office.
D. The threat of dysfunctional behavior is largely theoretical and managers can be trusted to maximise shareholder wealth.
E. Forcing GHY-Motor to grant a discount to GHY-Build could lead to dysfunctional behavior.
Answer: A,C,E

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