Multinational Business Finance 13th Edition Test Bank Chapter 19

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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:

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:

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:

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:

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

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:

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:

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:

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

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:

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:

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:

Question: Even though dividends are cash payments, firms typically must consider both

cash flow and net income when making dividend distribution decisions. Answer: