ETS MFT MBA EXAM EXPECTED NEWEST VERSION 2026-2027
100 QUESTION AND CORRECT ANSWERS.
QUESTION 1
If you were the holder of a call option (having cost you $2) on some stock with an
exercise price of $20, it would be best for you to exercise your option when the market
price is at which of the following levels?
a) $18
b) $20
c) $22
d) $24
CORRECT ANS: d
Expert Rationale
A call option gives the holder the right, but not the obligation, to purchase the
underlying stock at the exercise (strike) price. The option is profitable to exercise when
the market price exceeds the exercise price plus the cost of the option. At a market price
of $24, exercising the option allows the holder to buy the stock at $20 and sell it at $24,
resulting in a gross profit of $4 per share. After subtracting the $2 option cost, the net
profit is $2 per share. At $22, the gross profit is $2, but after the $2 option cost, the net
profit is zero. At $18 and $20, the option is out-of-the-money or at-the-money, making
exercise unattractive. Therefore, the best time to exercise is when the market price is at
$24.
QUESTION 2
Increased globalization and technological change, particularly in telecommunications,
enable more organizations to adopt which of the following organizational structures?
,a) Functional
b) Matrix
c) Network
d) Mechanistic
CORRECT ANS: c
Expert Rationale
A network organizational structure relies on information technology and
telecommunications to coordinate activities across geographically dispersed units and
external partners. Globalization and advances in telecommunications allow organizations
to outsource non-core functions, form strategic alliances, and coordinate activities
across borders more efficiently. Functional structures are rigid and hierarchical. Matrix
structures are complex and require strong communication but are not specifically
enabled by globalization. Mechanistic structures are rigid and bureaucratic, resistant to
change. Therefore, the network structure is the most enabled by increased globalization
and technological change.
QUESTION 3
A new local Super Store publicly announced that when more than three people are
standing in line at cash registers, additional checkout lines will be opened. After the
announcement, customers quickly noticed that the additional lines were not opened
until six or seven people were standing in line. This indicates a gap between which of the
following?
a) Customer expectation and management perception of customer expectation
b) Management perception of customer expectation and service quality specifications
c) Customer expectation and internal management communication
d) Actual service delivery and how service quality was communicated
CORRECT ANS: d
Expert Rationale
This scenario illustrates a gap between actual service delivery and external
communication about service quality. The company announced a specific service
standard (opening additional lines when more than three people are waiting), but the
,actual delivery (waiting until six or seven people are in line) did not meet the
communicated standard. This is a gap in the Service Quality Gap Model, specifically the
gap between what the company communicates about service quality and what it actually
delivers. Therefore, the correct answer is the gap between actual service delivery and
how service quality was communicated.
QUESTION 4
All of the following can be considered in the evaluation of a business unit EXCEPT:
a) Wages paid to labor
b) Projected annual revenues of competitors
c) The cost of materials used in the production process
d) The price at which goods produced are sold
CORRECT ANS: b
Expert Rationale
The evaluation of a business unit involves analyzing internal costs, revenues, and
operational efficiency. Wages paid to labor, the cost of materials, and the selling price of
goods are all internal factors directly related to the business unit's performance.
Projected annual revenues of competitors are external factors that are outside the
control of the business unit and are not directly used in evaluating the unit's
performance. While competitive analysis is important, projected competitor revenues are
not a factor in evaluating the business unit itself. Therefore, projected annual revenues
of competitors are not considered in the evaluation of a business unit.
QUESTION 5
The sales division of a corporation is considering an internal product transfer because of
excess demand. What is the lowest acceptable transfer price for the product?
a) The amount that the company would have to pay to acquire a similar product
b) The variable cost of producing a unit of product
, c) The full absorption cost of producing a unit of product
d) The difference between the market price and the costs recaptured by transferring
internally
CORRECT ANS: d
Expert Rationale
In transfer pricing, the lowest acceptable transfer price for the selling division is the
incremental cost of producing the product plus any opportunity cost. The opportunity
cost is the contribution margin forgone from lost external sales. The difference between
the market price and the costs recaptured by transferring internally represents the
minimum transfer price that would not leave the selling division worse off. This ensures
that the selling division is not penalized for internal transfers and maintains its
profitability. Therefore, the correct answer is the difference between the market price
and the costs recaptured by transferring internally.
QUESTION 6
The Mart, a large retail chain, is considering whether or not to close down a division. The
division's projected income statement for the next year is as follows:
Sales: $20,000,000
Cost of goods sold: $17,000,000
Gross profit: $3,000,000
Operating costs:
o Building rents: $2,500,000
o Store clerk salaries: $3,000,000
o Store utilities: $1,200,000
o Allocated home office cost: $700,000
Total operating costs: $7,400,000
Anticipated loss: ($4,400,000)
The building rents arise from long-term leases that cannot be cancelled. If The Mart
closed down this division, what would be the increase in company profits?
a) $700,000
b) $1,200,000
100 QUESTION AND CORRECT ANSWERS.
QUESTION 1
If you were the holder of a call option (having cost you $2) on some stock with an
exercise price of $20, it would be best for you to exercise your option when the market
price is at which of the following levels?
a) $18
b) $20
c) $22
d) $24
CORRECT ANS: d
Expert Rationale
A call option gives the holder the right, but not the obligation, to purchase the
underlying stock at the exercise (strike) price. The option is profitable to exercise when
the market price exceeds the exercise price plus the cost of the option. At a market price
of $24, exercising the option allows the holder to buy the stock at $20 and sell it at $24,
resulting in a gross profit of $4 per share. After subtracting the $2 option cost, the net
profit is $2 per share. At $22, the gross profit is $2, but after the $2 option cost, the net
profit is zero. At $18 and $20, the option is out-of-the-money or at-the-money, making
exercise unattractive. Therefore, the best time to exercise is when the market price is at
$24.
QUESTION 2
Increased globalization and technological change, particularly in telecommunications,
enable more organizations to adopt which of the following organizational structures?
,a) Functional
b) Matrix
c) Network
d) Mechanistic
CORRECT ANS: c
Expert Rationale
A network organizational structure relies on information technology and
telecommunications to coordinate activities across geographically dispersed units and
external partners. Globalization and advances in telecommunications allow organizations
to outsource non-core functions, form strategic alliances, and coordinate activities
across borders more efficiently. Functional structures are rigid and hierarchical. Matrix
structures are complex and require strong communication but are not specifically
enabled by globalization. Mechanistic structures are rigid and bureaucratic, resistant to
change. Therefore, the network structure is the most enabled by increased globalization
and technological change.
QUESTION 3
A new local Super Store publicly announced that when more than three people are
standing in line at cash registers, additional checkout lines will be opened. After the
announcement, customers quickly noticed that the additional lines were not opened
until six or seven people were standing in line. This indicates a gap between which of the
following?
a) Customer expectation and management perception of customer expectation
b) Management perception of customer expectation and service quality specifications
c) Customer expectation and internal management communication
d) Actual service delivery and how service quality was communicated
CORRECT ANS: d
Expert Rationale
This scenario illustrates a gap between actual service delivery and external
communication about service quality. The company announced a specific service
standard (opening additional lines when more than three people are waiting), but the
,actual delivery (waiting until six or seven people are in line) did not meet the
communicated standard. This is a gap in the Service Quality Gap Model, specifically the
gap between what the company communicates about service quality and what it actually
delivers. Therefore, the correct answer is the gap between actual service delivery and
how service quality was communicated.
QUESTION 4
All of the following can be considered in the evaluation of a business unit EXCEPT:
a) Wages paid to labor
b) Projected annual revenues of competitors
c) The cost of materials used in the production process
d) The price at which goods produced are sold
CORRECT ANS: b
Expert Rationale
The evaluation of a business unit involves analyzing internal costs, revenues, and
operational efficiency. Wages paid to labor, the cost of materials, and the selling price of
goods are all internal factors directly related to the business unit's performance.
Projected annual revenues of competitors are external factors that are outside the
control of the business unit and are not directly used in evaluating the unit's
performance. While competitive analysis is important, projected competitor revenues are
not a factor in evaluating the business unit itself. Therefore, projected annual revenues
of competitors are not considered in the evaluation of a business unit.
QUESTION 5
The sales division of a corporation is considering an internal product transfer because of
excess demand. What is the lowest acceptable transfer price for the product?
a) The amount that the company would have to pay to acquire a similar product
b) The variable cost of producing a unit of product
, c) The full absorption cost of producing a unit of product
d) The difference between the market price and the costs recaptured by transferring
internally
CORRECT ANS: d
Expert Rationale
In transfer pricing, the lowest acceptable transfer price for the selling division is the
incremental cost of producing the product plus any opportunity cost. The opportunity
cost is the contribution margin forgone from lost external sales. The difference between
the market price and the costs recaptured by transferring internally represents the
minimum transfer price that would not leave the selling division worse off. This ensures
that the selling division is not penalized for internal transfers and maintains its
profitability. Therefore, the correct answer is the difference between the market price
and the costs recaptured by transferring internally.
QUESTION 6
The Mart, a large retail chain, is considering whether or not to close down a division. The
division's projected income statement for the next year is as follows:
Sales: $20,000,000
Cost of goods sold: $17,000,000
Gross profit: $3,000,000
Operating costs:
o Building rents: $2,500,000
o Store clerk salaries: $3,000,000
o Store utilities: $1,200,000
o Allocated home office cost: $700,000
Total operating costs: $7,400,000
Anticipated loss: ($4,400,000)
The building rents arise from long-term leases that cannot be cancelled. If The Mart
closed down this division, what would be the increase in company profits?
a) $700,000
b) $1,200,000
