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Which statement regarding executive stock options is FALSE? a) They are usually long term in order to retain good managers. b) They should reduce agency costs by making managers act like shareholders c) The value of the options are a good reflection of the managers performance d) They make up a large portion of compensation for executives at large firms

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Nestor Rutherford
Nestor RutherfordLv2
28 Sep 2019

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4. If you __________, then you may be forced to buy the underlying stock.

  1. Buy a Call Option
  2. Buy a Put Option
  3. Sell a Call Option
  4. Sell a Put Option

5. Lower risk free rates results in __________ Put Option prices and ______ Call Option Prices.

  1. Higher, Higher
  2. Higher, Lower
  3. Lower, Lower
  4. Lower,Higher

6. Which Statement is correct?

  1. Speculators make money by setting up transactions and are the go betweens in the derivatives market.
  2. A firm should always hedge in order to reduce risk whenever they can
  3. Hedgers do not mind losing money as long as they are reducing their risk
  4. Brokers try to find mispricings in the market where they can buy at a low price and simultaneously sell at a high price without taking on any risk.

7. Which statement regarding executive stock options is correct?

  1. They are short term and usually expire after one year.
  2. They should reduce agency costs by making managers act like shareholders
  3. They are included as compensation expense on the income statement.
  4. Managers can sell the options on an exchange

8. Which of the following statements are correct?

  1. Forward contracts are standardized and trade on an exchange
  2. Profits and Losses on Futures contracts are marked to market on a daily basis.
  3. Delivery of the assets almost never occurs in the forward market
  4. Futures contracts allow you to buy or sell individual stocks for a preset price on the expiration date.

9. You need a barrel of oil next month. You could either buy the oil today and keep it for a month, wait and buy the oil next month when you need it, you could enter into a futures contract to buy oil at the current futures price $81, or you can pay $2 for a call option that gives you the right to buy oil for $80. The current spot price is $79 and the risk free rate is 2%, and carrying costs are $2. If the price ends up being $84 next month, then you should have ______________.

  1. Waited to buy the oil
  2. Entered into a futures contract
  3. Bought a call option
  4. Buy the oil today and store it for a month.

10. Which of these should cause the dollar to appreciate?

  1. A decline in foreign demand for US goods and services
  2. An increase in US demand for foreign goods and services
  3. An increase in foreign demand for US financial assets
  4. An increase in the amount of gold held by the US central bank

1) The subarea of finance where you need to value uncertain cash flows occurring at different points in time is:

a. investments

b. corporate finance

c. capital markets

d. bank management.

e. all of the above subareas

2) Which of the following statements is correct?

a. One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.

b. Corporations face fewer regulations than sole proprietorships.

c. One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the Owner level.

d. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents ace required.

e. If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

3) Which of the following statements is correct?

a. Corporations generally face fewer regulations than sole proprietorships.

b. Corporate shareholders are exposed to unlimited liability.

c. It is usually easier to transfer ownership in a corporation than in a partnership.

d. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.

e. Less of a corporation's income is generally subject to federal taxes.

4) The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to:

a. Maximize its expected total corporate income.

b. Maximize its expected EPS.

c. Minimize the chances of losses.

d. Maximize the stock price per share over the long run, which is the stock’s intrinsic value.

e. Maximize the stock price on a specific target date.

5) Which of the following is correct?

a. In most corporations, the CFO ranks above the CEO.

b. By Law in most states, the chairman of the board must also be the CEO.

c. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person.

d. The CFO generally reports to the firm's chief accounting officer, who is normally the controller.

e. The CFO is responsible for raising capital and for making sure that capital expenditures are desirable, but he or she is not responsible for the validity of the financial statements, as the controller and the auditors have that responsibility.

6) The primary operating goal of a publicly-owned firm trying to best serve its stockholders should be to

a. Maximize managers' own interests, which are by definition consistent with maximizing shareholders' wealth.

b. Maximize the firm’s expected EPS, which must also maximize the firm’s price per share.

c. Minimize the firm’s risks because most stockholders dislike risk in turn, this will maximize the firm’s stock price.

d. Use a well-structured managerial compensation package to reduce conflicts that may exist between stockholders and managers.

e. Since it is impossible to measure a stock's intrinsic value, the text states that it is better for managers to attempt to maximize the current stock price than its intrinsic value.

7) Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

a. Compensating managers with stock options.

b. Financing risky projects with additional debt.

c. The threat of hostile takeovers.

d. The use of covenants in bond agreements that limit the firm’s use of additional debt and constrain managers' actions.

e. Abolishing the Security and Exchange Commission.

8) Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and managers?

a. Pay managers large cash salaries and give them no stock options.

b. Change the corporation's formal documents to make it easier for outside investors to acquire a controlling interest in the firm through a hostile takeover.

c. Beef up the restrictive covenants in the firm’s debt agreements.

d. Eliminate a requirement that members of the board of directors must hold a high percentage of their personal wealth in the firm’s stock.

e. For a firm that compensates managers with stock options, reduce the time before options are vested, i.e., the time before options can be exercised and the shares that are received can be sold.

9) Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders?

a. Decrease the use of restrictive covenants in bond agreements.

b. Take actions that reduce the possibility of a hostile takeover.

c. Elect a board of directors tlta.t allows managers greater freedom of action.

d. Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.

e. Eliminate a requirement that members of the board of directors have a substantial investment in the firm’s stock.

10) Which of the following is correct?

a. Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock.

b. Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything, bondholders generally prefer to see corporate managers invest in high risk/high return projects rather than low risk/low return projects.

c. There is no good reason to expect a firm’s stockholders and bondholders to react differently to the types of assets in which it invests.

d. Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns.

e. Bondholders should generally be happier titan stockholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns.

11) You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

a. This is an example of a direct transfer of capital

b. This is an example of a primary market transaction.

c. This is an example of an exchange of physical assets.

d. This is an example of a money market transaction.

e. This is an example of a derivative market transaction.

12) Which of the following statements is correct?

a. The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically.

b. An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift.

c. Capital market instruments include both long-term debt and common stocks.

d. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.

e. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

13) Which of the following is a primary market transaction?

a. You sell 200 shares of IBM stock on the NYSE through your broker.

b. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker--you just give him cash and he gives you the stock.

c. IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.

d. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction.

e. IBM sells 2,000.000 shares of treasury stock to its employees when they exercise options that were granted in prior years.

14) Money Markets are markets for:

a. Foreign currencies.

b. Consumer automobile loans.

c. Common stocks.

d. Long-term bonds.

e. Short-term debt securities such as Treasury bills and commercial paper.

15) You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

a. A money market transaction.

b. A primary market transaction.

c. A secondary market transaction.

d. A futures market transaction.

e. An over-the-counter market transaction.

16) Which of the following statements is correct?

a. Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States.

b. Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia.

c. Hedge funds have more in common with investment banks than with any other type of financial institution.

d. Hedge funds have more in common with commercial banks than with any other type of financial institution.

e. Hedge funds are not as highly regulated as most other types of financial institutions.

17) Which of the following factors statements is correct?

a. The New York Stock Exchange is an auction market, and it has a physical location.

b. Home mortgage loans are traded in the money market.

c. If an investor sells shares of stock through a broker, then it would be a primary market transaction.

d. Capital markets deal only with common stocks and other equity securities.

e. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.

18) Which of the following statements is correct?

a. The term "IPO" stands for Introductory Price Offered, and it is the price at which shares of a new company are offered to the public.

b. IPO prices are generally established by the market, and buyers of the new stock must pay the price that prevails at the close of trading on the day the stock is offered to the public.

c. In a "Dutch auction," investors who want to buy shares in an IPO submit bids indicating how many shares they want to buy and the price they are willing to pay. The company determines how many shares it wants to sell. The highest price that enables the company to sell the desired number of shares is the price that all buyers must pay.

d. It is possible that the price set in an IPO is so high that investors will refuse to buy the number of shares that the company wants to sell. In this situation, the IPO is said to be oversubscribed.

e. It is possible that the price set in an IPO is so low that investors will want to buy more shares than the company wants to sell. In that case, the company will have to issue more shares than it wants to sell.

19) The stock market is thought to be efficient because:

a. There are many brokers working the exchange floors

b. Computers can make very fast calculations these days

c. There are many stock analysts following the same stocks

d. Stocks are available and are very inexpensive

e. Speed trading is now an acceptable trading technique

20) If the stock is priced correctly but with better management the firm could be worth even more, then the firm would be:

a. A potential target for a stock investor

b. A potential target for a private equity firm

c. A potential target for a bond fund

d. A potential target for the SEC

e. A potential target for share repurchases

Please read below case and answer following question: -

Q:- Assume that you have been asked to provide advice to Ken Vincent, what would you tell him? Why?

CASE:- It Isn’t So Simple: Infrastructure Change at Royce Consulting*

The lights of the city glittered outside Ken Vincent’s twelfthfloor

office. After nine years of late nights and missed holidays,

Ken was in the executive suite with the words “Associate

Partner” on the door. Things should be easier now, but the

proposed changes at Royce Consulting had been more challenging

than he had expected. “I don’t understand,” he

thought. “At Royce Consulting our clients, our people, and

our reputation are what count, so why do I feel so much tension

from the managers about the changes that are going to

be made in the office? We’ve analyzed why we have to make

the changes. Heck, we even got an outside person to help us.

The administrative support staff are pleased. So why aren’t

the managers enthusiastic? We all know what the decision at

tomorrow’s meeting will be—Go! Then it will all be over. Or

will it?” Ken thought as he turned out the lights.

Background

Royce Consulting is an international consulting firm whose

clients are large corporations, usually with long-term contracts.

Royce employees spend weeks, months, and even

years working under contract at the client’s site. Royce

consultants are employed by a wide range of industries,

from manufacturing facilities to utilities to service businesses.

The firm has over 160 consulting offices located in

65 countries. At this location Royce employees included

85 staff members, 22 site managers, 9 partners and associate

partners, 6 administrative support staff, 1 human

resource professional, and 1 financial support person.

For the most part, Royce Consulting hired entry-level

staff straight out of college and promoted from within.

New hires worked on staff for five or six years; if they

did well, they were promoted to manager. Managers were

responsible for maintaining client contracts and assisting

partners in creating proposals for future engagements.

Those who were not promoted after six or seven years

generally left the company for other jobs.

Newly promoted managers were assigned an office,

a major perquisite of their new status. During the previous

year, some new managers had been forced to share an

office because of space limitations. To minimize the friction

of sharing an office, one of the managers was usually

assigned to a long-term project out of town. Thus, practically

speaking, each manager had a private office.

Infrastructure and Proposed Changes

Royce was thinking about instituting a hoteling office

system—also referred to as a “nonterritorial” or “free- address”

office. A hoteling office system made offices available to

managers on a reservation or drop-in basis. Managers are

not assigned a permanent office; instead, whatever materials

and equipment the manager needs are moved into the

temporary office. These are some of the features and advantages

of a hoteling office system:

• No permanent office assigned

• Offices are scheduled by reservations

• Long-term scheduling of an office is feasible

• Storage space would be located in a separate file room

• Standard manuals and supplies would be maintained in

each office

• Hoteling coordinator is responsible for maintaining

offices

• A change in “possession of space”

• Eliminates two or more managers assigned to the same

office

• Allows managers to keep the same office if desired

• Managers would have to bring in whatever files they

needed for their stay

• Information available would be standardized regardless

of office

• Managers do not have to worry about “housekeeping

issues”

The other innovation under consideration was an

upgrade to state-of-the-art electronic office technology. All

managers would receive a new notebook computer with

updated communications capability to use Royce’s integrated

and proprietary software. Also, as part of the electronic

office technology, an electronic filing system was

considered. The electronic filing system meant information

regarding proposals, client records, and promotional

materials would be electronically available on the Royce

Consulting network.

The administrative support staff had limited experience

with many of the application packages used by the managers.

While they used word processing extensively,

they had little experience with spreadsheets,

communications, or graphics packages. The

firm had a graphics department and the managers

did most of their own work, so the administrative

staff did not have to work with those

application software packages.

Work Patterns

Royce Consulting was located in a large city in the Midwest.

The office was located in the downtown area, but it was

easy to get to. Managers assigned to in-town projects often

stopped by for a few hours at various times of the day.

Managers who were not currently assigned to client projects

were expected to be in the office to assist on current

projects or work with a partner to develop proposals for

new business.

In a consulting firm, managers spend a significant

portion of their time at client sites. As a result, the office

occupancy rate at Royce Consulting was about 40 to

60 percent. This meant that the firm paid lease costs for

offices that were empty approximately half of the time.

With the planned growth over the next ten years, assigning

permanent offices to every manager, even in doubled-up

arrangements, was judged to be economically unnecessary

given the amount of time offices were empty.

The proposed changes would require managers and

administrative support staff to adjust their work patterns.

Additionally, if a hoteling office system was adopted,

managers would need to keep their files in a centralized

file room.

Organizational Culture

Royce Consulting had a strong organizational culture, and

management personnel were highly effective at communicating

it to all employees.

Stability of Culture

The culture at Royce Consulting was stable. The leadership

of the corporation had a clear picture of who they were and

what type of organization they were. Royce Consulting had

positioned itself to be a leader in all areas of large business

consulting. Royce Consulting’s CEO articulated the firm’s

commitment to being client-centered. Everything that was

done at Royce Consulting was because of the client.

Training

New hires at Royce Consulting received extensive training

in the culture of the organization and the methodology

employed in consulting projects. They began with a

structured program of classroom instruction and computer-

aided courses covering technologies used in the various

industries in which the firm was involved. Royce Consulting

recruited top young people who were aggressive and who

were willing to do whatever was necessary to get the job

done and build a common bond. Among new hires, camaraderie

was encouraged along with a level of competition.

This kind of behavior continued to be cultivated throughout

the training and promotion process.

Work Relationships

Royce Consulting employees had a remarkably similar outlook

on the organization. Accepting the culture and norms

of the organization was important for each employee. The

norms of Royce Consulting revolved around high performance

expectations and strong job involvement.

By the time people made manager, they were aware of

what types of behaviors were acceptable. Managers were

formally assigned the role of coach to younger staff people,

and they modeled acceptable behavior. Behavioral norms

included when they came into the office, how late they

stayed at the office, and the type of comments they made

about others. Managers spent time checking on staff people

and talking with them about how they were doing.

The standard for relationships was that of professionalism.

Managers knew they had to do what the partners

asked and they were to be available at all times. A norms

survey and conversations made it clear that people at

Royce Consulting were expected to help each other with

on-the-job problems, but personal problems were outside

the realm of sanctioned relationships. Personal problems

were not to interfere with performance on a job. To illustrate,

vacations were put on hold and other kinds of commitments

were set aside if something was needed at Royce

Consulting.

Organizational Values

Three things were of major importance to the organization:

its clients, its people, and its reputation. There was a

strong client-centered philosophy communicated and practiced.

Organization members sought to meet and exceed

customer expectations. Putting clients first was stressed.

The management of Royce Consulting listened to its clients

and made adjustments to satisfy the client.

The reputation of Royce Consulting was important

to those leading the organization. They protected and

enhanced it by focusing on quality services delivered by

quality people. The emphasis on clients, Royce Consulting

personnel, and the firm’s reputation was cultivated by

developing a highly motivated, cohesive, and committed

group of employees.

Management Style and Hierarchical Structure

The company organization was characterized by a directive

style of management. The partners had the final word on

all issues of importance. It was common to hear statements

like “Managers are expected to solve problems, and do

whatever it takes to finish the job” and “Whatever the

partners want, we do.” Partners accepted and asked for

managers’ feedback on projects, but in the final analysis,

the partners made the decisions.

Current Situation

Royce Consulting had an aggressive five-year plan that was

predicated on a continued increase in business. Increases in

the total number of partners, associate partners, managers,

and staff were forecast. Additional office space would be

required to accommodate the growth in staff; this would

increase rental costs at a time when Royce’s fixed and variable

costs were going up.

The partners, led by managing partner Donald Gray

and associate partner Ken Vincent, believed that something

had to be done to improve space utilization and the productivity

of the managers and administrative personnel.

The partners approved a feasibility study of the innovations

and their impact on the company.

The ultimate decision makers were the partner group

who had the power to approve the concepts and commit

the required financial investment. A planning committee

consisted of Ken Vincent; the human resources

person; the financial officer; and an outside consultant,

Mary Schrean.

The Feasibility Study

Within two working days of the initial meeting, all the

partners and managers received a memo announcing the

hoteling office feasibility study. The memo included a brief

description of the concept and stated that it would include

an interview with the staff. By this time, partners and managers

had already heard about the possible changes and

knew that Gray was leaning toward hoteling offices.

Interviews with the Partners

All the partners were interviewed. One similarity in the

comments was that they thought the move to hoteling

offices was necessary but they were glad it would not affect

them. Three partners expressed concern about managers’

acceptance of the change to a hoteling system. The conclusion

of each partner was that if Royce Consulting moved

to hoteling offices, with or without electronic office technology,

the managers would accept the change. The reason

given by the partners for such acceptance was that the

managers would do what the partners wanted done.

The partners all agreed that productivity could be

improved at all levels of the organization: in their own

work as well as among the secretaries and the managers.

Partners acknowledged that current levels of information

technology at Royce Consulting would not support the

move to hoteling offices and that advances in electronic

office technology needed to be considered.

Partners viewed all filing issues as secondary to both

the office layout change and the proposed technology

improvement. What eventually emerged, however,

was that ownership and control of files

was a major concern, and most partners and

managers did not want anything centralized.

Interviews with the Managers

Personal interviews were conducted with all

ten managers who were in the office. During

the interviews, four of the managers asked Schrean whether

the change to hoteling offices was her idea. The managers

passed the question off as a joke; however, they expected

a response from her. She stated that she was there as an

adviser, that she had not generated the idea, and that she

would not make the final decision regarding the changes.

The length of time that these managers had been in

their current positions ranged from six months to five years.

None of them expressed positive feelings about the hoteling

system, and all of them referred to how hard they had

worked to make manager and gain an office of their own.

Eight managers spoke of the status that the office gave them

and the convenience of having a permanent place to keep

their information and files. Two of the managers said they

did not care so much about the status but were concerned

about the convenience. One manager said he would come in

less frequently if he did not have his own office. The managers

believed that a change to hoteling offices would decrease

their productivity. Two managers stated that they did not

care how much money Royce Consulting would save on

lease costs; they wanted to keep their offices.

However, for all the negative comments, all the managers

said that they would go along with whatever the

partners decided to do. One manager stated that if Royce

Consulting stays busy with client projects, having a permanently

assigned office was not a big issue.

During the interviews, every manager was enthusiastic

and supportive of new productivity tools, particularly the

improved electronic office technology. They believed that

new computers and integrated software and productivity

tools would definitely improve their productivity. Half the

managers stated that updated technology would make

the change to hoteling offices “a little less terrible,” and

they wanted their secretaries to have the same software

as they did.

The managers’ responses to the filing issue varied. The

volume of files managers had was in direct proportion to

their tenure in that position: The longer a person was a

manager, the more files he or she had. In all cases, managers

took care of their own files, storing them in their offices

and in whatever filing drawers were free.

As part of the process of speaking with managers, their

administrative assistants were asked about the proposed

changes. Each of the six thought that the electronic office

upgrade would benefit the managers, although they were

somewhat concerned about what would be expected of

them. Regarding the move to hoteling offices,

each said that the managers would hate the

change, but that they would agree to it if the

partners wanted to move in that direction.

Results of the Survey

A survey developed from the interviews was

sent to all partners, associate partners, and

managers two weeks after the interviews were conducted.

The completed survey was returned by 6 of the 9 partners

and associate partners and 16 of the 22 managers. This is

what the survey showed.

Work Patterns. It was “common knowledge” that managers

were out of the office a significant portion of their

time, but there were no figures to substantiate this belief, so

the respondents were asked to provide data on where they

spent their time. The survey results indicated that partners

spent 38 percent of their time in the office; 54 percent

at client sites; 5 percent at home; and 3 percent in other

places, such as airports. Managers reported spending

32 percent of their time in the office, 63 percent at client

sites, 4 percent at home, and 1 percent in other places.

For 15 workdays, the planning team also visually

checked each of the 15 managers’ offices four times each

day: at 9 a.m., 11 a.m., 2 p.m., and 4 p.m. These times

were selected because initial observations indicated that

these were the peak occupancy times. An average of six

offices (40 percent of all manager offices) were empty at

any given time; in other words, there was a 60 percent

occupancy rate.

Alternative Office Layouts. One of the alternatives

outlined by the planning committee was a continuation of

and expansion of shared offices. Eleven of the managers

responding to the survey preferred shared offices to hoteling

offices. Occasions when more than one manager was

in the shared office at the same time were infrequent. Eight

managers reported 0 to 5 office conflicts per month; three

managers reported 6 to 10 office conflicts per month. The

type of problems encountered with shared offices included

not having enough filing space, problems in directing telephone

calls, and lack of privacy.

Managers agreed that having a permanently assigned

office was an important perquisite. The survey confirmed

the information gathered in the interviews about managers’

attitudes: All but two managers preferred shared offices

over hoteling, and managers believed their productivity

would be negatively impacted. The challenges facing Royce

Consulting if they move to hoteling offices centered around

tradition and managers’ expectations, file accessibility and

organization, security and privacy issues, unpredictable

work schedules, and high-traffic periods.

Control of Personal Files. Because of the comments

made during the face-to-face interviews, survey respondents

were asked to rank the importance of having personal

control of their files. A 5-point scale was used, with 5 being

“strongly agree” and 1 being “strongly disagree.” Here are

the responses.

Respondents Sample Rank

Partners Managers: 6 4.3

0–1 year 5 4.6

2–3 years 5 3.6

4_ years 6 4.3

Electronic Technology. Royce Consulting had a basic

network system in the office that could not accommodate

the current partners and managers working at a remote

site. The administrative support staff had a separate

network, and the managers and staff could not communicate

electronically. Of managers responding to the survey,

95 percent wanted to use the network but only 50 percent

could actually do so.

Option Analysis

A financial analysis showed that there were significant cost

differences between the options under consideration:

Option 1: Continue private offices with some office sharing

• Lease an additional floor in existing building; annual

cost, $360,000

• Build out the additional floor (i.e., construct, furnish,

and equip offices and work areas): one-time cost,

$600,000

Option 2: Move to hoteling offices with upgraded office

technology

• Upgrade office electronic technology: one-time cost,

$190,000

Option 1 was expensive because under the terms of

the existing lease, Royce had to commit to an entire floor

if it wanted additional space. Hoteling offices showed an

overall financial advantage of $360,000 per year and a

one-time savings of $410,000 over shared or individual

offices.

The Challenge

Vincent met with Mary Schrean to discuss the upcoming

meeting of partners and managers, where they would

present the results of the study and a proposal for action.

Included in the report were proposed layouts for both

shared and hoteling offices. Vincent and Gray were planning

to recommend a hoteling office system, which would

include storage areas, state-of-the-art electronic office technology

for managers and administrative support staff, and

centralized files. The rationale for their decision emphasized

the amount of time that managers were out of the

office and the high cost of maintaining the status quo and

was built around the following points:

1. Royce’s business is different: offices are empty from

40 to 60 percent of the time.

2. Real estate costs continue to escalate.

3. Projections indicate there will be increased need for

offices and cost-control strategies as the business

develops.

4. Royce Consulting plays a leading role in helping organizations

implement innovation.

“It’s still a go,” thought Vincent as he

and the others returned from a break. “The

cost figures support it and the growth figures

support it. It’s simple—or is it? The

decision is the easy part. What is it about

Royce Consulting that will help or hinder

its acceptance? In the long run, I hope we

strengthen our internal processes and don’t

hinder our effectiveness by going ahead with these simple

changes.”

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