ECO 410 Week 11 Quiz Strayer
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Quiz 10 Chapter 19 and 20
Working Capital Management
19.1 Trident Brazil's Operating Cycle
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) quotationB) input sourcingC) accounts payableD) 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.
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
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 currencyC) the ability to move capital in and out of the subsidiary's countryD) All of the above are significant factors.
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
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.
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
1) ________ allows a multinational firm to recover funds from subsidiaries without piquing host country sensitivities over large dividend drains.A) Unbundling fundsB) Bundling fundsC) Coordinating fundsD) 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
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.
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
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/RB) a reduction in inventoryC) a reduction in A/P plus a smaller reduction in A/RD) 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 19.1Use 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) $80,000B) $680,000C) $35,000D) $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) $20,000B) $10,000C) $0D) 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) $400,000B) $8,000C) $33,333D) $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.
1) In principle, the firm tries to minimize its NWC balance.