Multinational Business Finance 13th Edition Test Bank Chapter 19

subject Type Homework Help
subject Pages 9
subject Words 3505
subject Authors Arthur I. Stonehill, David K. Eiteman, Michael H. Moffett

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Multinational Business Finance, 13e (Eiteman/Stonehill/Moffett) Chapter 19
Working Capital Management 19.1 Trident Brazils Operating Cycle Multiple Choice
Question: Working capital management involves the management of: A) current and
long-term assets. B) current assets and current liabilities. C) current liabilities and
long-term assets. D) current liabilities and long-term debt and equity. Answer:
Question: The cash conversion cycle: A) is a subset of the operating cycle. B) occurs in the
latter stages of the operating cycle. C) is a subset of the accounts receivable period. D) all
of the above. Answer:
Question: The proper order of events for the operating cycle is: A) input serving period,
accounts receivable period, inventory period, quotation period. B) quotation period,
accounts receivable period, inventory period, input servicing period. C) quotation period,
input servicing period, inventory period, accounts receivable period. D) accounts
receivable period, input servicing period, quotation period, inventory period. Answer:
Question: TrinityApps Corporation (US) has bid a price on a project for a Korean firm, but
the Korean firm has not yet placed an order. This portion of the operating cycle is best
described as the: A) quotation period. B) input sourcing period. C) cash conversion cycle.
D) accounts payable cycle. Answer:
Question: The period in the cash cycle where the customer places the order, and the firm
determines what materials for manufacture are NOT in inventory is called the ________
period. A) quotation B) input sourcing C) accounts payable D) accounts receivable
Answer:
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Question: The accounts payable period of the operating cycle: A) is equal to the inventory
period. B) may run concurrently but shorter than the inventory period. C) may run
concurrently but longer than the inventory period. D) Any one of the above may be true.
Answer:
Question: Typically, the inventory period and the accounts payable period at least partially
overlap in the firms operating cycle. Answer:
Question: Typically, the inventory period and the accounts receivable period at least
partially overlap in the firms operating cycle. Answer:
Question: The operating cycle begins with the quotation period and ends with the accounts
payable period. Answer:
Question: Of the following, which would NOT be a significant decision-making factor in a
multinational firms repositioning decision-making? A) the subsidiarys tax environment
(high or low) B) the stability of the local currency C) the ability to move capital in and out
of the subsidiarys country D) All of the above are significant factors. Answer:
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Question: In a country with a relatively high tax rate, it make sense the the MNE to
reposition cash flows TO that country. Answer:
Question: The MNE would prefer to leave capital with a firm in a country with high
growth prospects over the alternative of leaving capital with a firm in a country with low
growth prospects (other factors equal). Answer:
Question: Each of the following is listed by your authors as a constraint on repositioning
funds by an MNE EXCEPT: A) political constraints. B) tax constraints. C) transaction
costs. D) All of the above are listed by your authors. Answer:
Question: Local liquidity needs sometimes impact a firms worldwide optimal cash
position. Answer:
Question: The constraints on repositioning of funds that occur when exchanging one
currency for another are considered to be primarily political constraints. Answer:
Question: Political constraints can block the transfer of funds either overtly or covertly.
OVERT blockage occurs when dividends or other forms of fund remittances are severely
limited, heavily taxed, or excessively delayed by the need for bureaucratic approval.
Answer:
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Question: ________ allows a multinational firm to recover funds from subsidiaries without
piquing host country sensitivities over large dividend drains. A) Unbundling funds B)
Bundling funds C) Coordinating funds D) none of the above Answer:
Question: Unbundling of funds by an MNE may be a useful practice for which of the
following reasons? A) An increase in the funds flow (charges) in any of the before-tax
categories reduces the taxable profits of the foreign subsidiary if the host-country tax
authorities acknowledge the charge as a legitimate expense. B) An item-by-item matching
of remittance to input, such as royalties for intellectual property, and fees for patents and
advice, is equitable to the host country and foreign investor alike. C) Unbundling
facilitates allocation of overhead from a parents international division, so-called shared
services, to each operating subsidiary in accordance with a predetermined formula. D) All
of the reasons listed above Answer:
Question: If all investment inputs are unbundled, part of what might have been classified
as residual profits may turn out to be tax-deductible expenses related to a specific
purchased benefit. Answer:
Question: The before-tax/after-tax distinction is quite significant to a parent company
attempting to repatriate funds in the most tax-efficient method if it is attempting to manage
its own foreign tax credit/deficits between foreign units. Answer:
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Question: In anticipation of a foreign exchange loss, an MNE may speed up the transfer of
funds out of the company via dividends. When undertaking such an activity the MNE must
be concerned with all of the following EXCEPT: A) interest rate differences between the
two countries. B) the negative impact on host country relations. C) defection on the part of
executives in the home headquarters. D) MNEs must be concerned with all of the above.
Answer:
Question: Political risk may motivate parent firms to require foreign subsidiaries to remit
all locally generated funds above that required to internally finance growth in sales and
planned capital expansions. Answer:
Question: One possible definition of net working capital (NWC) provided by your authors
is: A) NWC = A/R + inventory - A/P. B) NWC = cash + A/P - inventory. C) NWC = A/P +
A/R - short-term loans. D) NWC = A/R + inventory - long-term debt. Answer:
Question: Which of the following actions will result in an increase in NWC? A) an
increase in A/P that exceeds an increase in A/R B) a reduction in inventory C) a reduction
in A/P plus a smaller reduction in A/R D) an increase in A/P and a smaller reduction in
inventory Answer:
Question: Which of the following statements is true? A) A/R provide part of the funding
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for inventory. B) A/P provide part of the funding for A/R and inventory. C) Inventory pays
for A/R and A/P. D) None of the above is true. Answer:
Question: Refer to Table 19.1. The NWC for TrinityApps is: A) $80,000 B) $680,000 C)
$35,000 D) $45,000 Answer:
Question: Refer to Table 19.1. If TrinityApps increases inventory by $10,000 and A/P also
by $10,000, the net change in NWC is: A) $20,000 B) $10,000 C) $0 D) none of the above
Answer:
Question: Refer to Table 19.1. NWC currently makes up what percentage of total firm
value for TrinityApps? A) 6.6% B) 5.1% C) 11.8% D) 9.2% Answer:
Question: Refer to Instruction 19.1. What is the amount of money Sunny Manufacturing
will save on accounts payable if they accept the discount? A) $400,000 B) $8,000 C)
$33,333 D) $20,000 Answer:
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Question: Refer to Instruction 19.1. What is the effective annual interest cost of supplier
financing offered by Sun Chemical? A) 7.3% B) 9.5% C) 10.4% D) 22.9% Answer:
Question: Refer to Instruction 19.1. Should Sunny Manufacturing take the discount offered
by Sun Chemical? A) Yes, Sunny Manufacturing will get to use their raw materials 35 days
earlier than if they waited to pay at the end of the 45 days. B) No, Sunny Manufacturing
will not have to pay any interest if they just pay in 45 days. C) Yes, Sunny Manufacturings
short term borrowing rate of 9.6% is less than Suns offered cost of carry of 22.9%. D) No,
it costs Sunny Manufacturing 22.9% to accept the discount and they are better off paying
the full amount in 45 days. Answer:
Question: Days working capital is equal to: A) days payables + days receivables - days
inventory. B) days inventory + days receivables - days payables. C) days payables + days
inventory + days receivables. D) none of the above Answer:
Question: Amundsen of Norway receives raw materials from their corporate parent in the
U.S. with payment terms of net 60 days. Most of their sales are to firms in Norway where
normal payment terms are net 30 days. This causes a problem for the subsidiary with
working capital management because: A) accounts receivable are so much longer than
accounts payable. B) accounts payable are so much longer than accounts receivable. C)
accounts receivable and accounts payable are equal. D) This doesnt really cause a
problem; in fact it is to the benefit of the Norwegian subsidiary. Answer:
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Question: In principle, the firm tries to minimize its NWC balance. Answer:
Question: Other things equal, managers prefer a lower "days working capital" to a higher
one. Answer:
Question: The authors present empirical evidence that shows the days sales basis for
working capital to be 30 days GREATER in the U.S. compared to a similar industry in
Europe. Answer:
Question: What is a free-trade zone? Identify three techniques and provide examples of
how firms and countries can benefit from having free trade zones. Answer:
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Question: Other things equal, a firm would rather have ________ in a depreciating
currency, and ________ in an appreciating currency. A) accounts receivable; accounts
payable B) accounts receivable; accounts receivable C) accounts payable; accounts
receivable D) none of the above Answer:
Question: Which of the following is NOT a precautionary motive for holding cash? A)
Anticipated funds to be remitted from several Middle East countries are in question due to
unrest in the region. B) The firm has several short-term obligations in unhedged foreign
currency-denominated contracts. C) The firm must pay ordinary wages in two days. D) All
are precautionary motives. Answer:
Question: Increases to cash flows can be anticipated if which of the following occurs? A) A
receivables contract is denominated in an appreciating foreign currency. B) Sales are less
than anticipated. C) Days in accounts receivable increase by 15 days. D) none of the above
Answer:
Question: A centralized depository benefits the firm primarily by: A) reducing the cost of
repatriating funds. B) positioning profits where taxes are lowest. C) reducing the total
amount of capital employed within the total firm. D) earning a higher rate of return than in
domestic banking deposits. Answer:
Question: The Clearing House Interbank Payment System (CHIPS) is: A) the largest
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publicly operated payments system in the world. B) owned and operated by the worlds
seven largest central banks. C) a computerized network that connects banks globally. D)
none of the above Answer:
Question: An organizational structure employed by an MNE to reduce its use of bank
lending for the support of operations is: A) a centralized depository. B) a reinvoicing
center. C) a cost center. D) a syndicated bank. Answer:
Question: ________ is the process that cancels via offset all, or part, of the debt owed by
one entity to another related entity. A) Syndicated banking B) Centralized depositing C)
Multilateral netting D) Debt cancellation Answer:
Question: In an inflationary economy, demand for credit usually exceeds supply. Answer:
Question: For disbursement purposes, it is to the benefit of the firm to minimize float.
Answer:
Question: Regarding wire transfers, CHIPS actually clears transactions whereas SWIFT
does not. Answer:
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Question: A significant problem with centralized cash depositories is that they are isolated
from the rest of the firm and tend to be at an information disadvantage. Answer:
Question: A reason for holding all precautionary balances in a central pool is that the total
pool, if centralized, can be reduced in size without any loss in the level of protection.
Answer:
Question: A disadvantage of a centralized cash management system is that managers will
not be able to get the lowest average rate available for the firm. Instead, it misses out on
the really low borrowing rates. Answer:
Question: Central depositories are used for international cash management. What is a
central depository? Identify and provide examples of at least three advantages to MNEs of
having a central depository. Answer:
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Question: A precautionary cash balance: A) is used to replace spoiled or damaged
inventory. B) is held to facilitate cash disbursements when receipts slow down. C) is used
for normal day-to-day operations. D) is held for the benefit of a sister affiliate. Answer:
Question: An in-house bank: A) is a separate bank chartered to operate within a business
firm. B) is in fact a set of functions performed by the firms existing treasury department.
C) assesses the credit standing of the banks customers. D) provides banking services for
employees. Answer:
Question: A foreign banking office that is separately incorporated in the host country is: A)
a correspondent bank. B) a representative office. C) a bank subsidiary. D) an Edge Act
corporation. Answer:
Question: An Edge Act corporation is a subsidiary of a U.S. bank located outside of the
U.S. and incorporated to engage in international banking and financing operations.
Answer:
Question: Because they are direct payments, dividends are among the most efficient way
for foreign subsidiaries to remit funds back to the parent. Answer:
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Question: Even though dividends are cash payments, firms typically must consider both
cash flow and net income when making dividend distribution decisions. Answer:

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