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Quiz 10 Chapter 19 and 20
Working Capital Management
19.1 Trident Brazil's Operating Cycle
Multiple Choice
1)
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.
2) 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.
3) 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.
4)
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.
5) 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
6) 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.
True/False
1)
Typically, the inventory period and the accounts payable period at least
partially overlap in the firms operating cycle.
2)
Typically, the inventory period and the accounts receivable period at least
partially overlap in the firms operating cycle.
3) The
operating cycle begins with the quotation period and ends with the accounts
payable period.
19.2 Trident's Repositioning Decisions
Multiple Choice
1) Of
the following, which would NOT be a significant decision-making factor in a
multinational firm's repositioning decision-making?
A) the
subsidiary's tax environment (high or low)
B) the
stability of the local currency
C) the
ability to move capital in and out of the subsidiary's country
D) All
of the above are significant factors.
True/False
1) In a
country with a relatively high tax rate, it make sense the the MNE to
reposition cash flows TO that country.
2) 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).
19.3 Constraints on Repositioning Funds
Multiple Choice
1) 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.
True/False
1) Local
liquidity needs sometimes impact a firm's worldwide optimal cash position.
2) The
constraints on repositioning of funds that occur when exchanging one currency
for another are considered to be primarily political constraints.
3)
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.
19.4 Conduits for Moving Funds by Unbundling Them
Multiple Choice
1)
________ 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
2)
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 parent''s international
division, so-called shared services, to each operating subsidiary in accordance
with a predetermined formula.
D) All
of the reasons listed above
True/False
1) 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.
2) 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.
19.5 International Dividend Remittances
Multiple Choice
1) 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.
True/False
1)
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.
19.6 Net Working Capital
Multiple Choice
1) 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.
2) 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
3) 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.
TABLE
19.1
Use the
information to answer following question(s).
TrinityApps Corporation Balance Sheet
December 31, 20xx
4) Refer
to Table 19.1. The NWC for TrinityApps is:
A)
$80,000
B)
$680,000
C)
$35,000
D)
$45,000
5) 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
6) 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%
Instruction
19.1:
Use the
information to answer the following question(s).
Sunny
Manufacturing Systems Inc. is supplied with plastic chips for their plastic
injection molding manufacturing process. Their supplier, Sun Chemical, Inc.
offers financing terms of a 2% discount if the accounts payable are paid in 10
days or less with the full balance due in 45 days. Short-term financing
available to Sunny Manufacturing is available at an annual rate of 9.6%. Sunny
Manufacturing has just purchased $400,000 of plastic chips from Sun Chemical.
7) 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
8) 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%
9) 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 Manufacturing's short term borrowing rate of 9.6% is less than Sun's
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.
10) 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
11)
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
doesn't really cause a problem; in fact it is to the benefit of the Norwegian
subsidiary.
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