Question: Why is working capital given special attention

> Why do investors invest the lion’s share of their funds in domestic securities?

> Mr. James K. Silber, an avid international investor, just sold a share of Nestlé,a Swiss firm, for SF5,080. The share was bought for SF4,600 a year ago. Theexchange rate is SF1.60 per U.S. dollar now and was SF1.78 per dollar a year ago.Mr. Silber receiv

> Rebecca Taylor, an international equity portfolio manager, recognizes that anoptimal country allocation strategy combined with an optimal currency strategyshould produce optimal portfolio performance. To develop her strategies, Taylorproduced the followi

> The United States has experienced continuous current account deficits since theearly 1980s. What do you think are the main causes for the deficits? What wouldbe the consequences of continuous U.S. current account deficits?

> Explain official reserve assets and its major components.

> Suppose we obtain the following data in dollar terms: The correlation coefficient between the two markets is 0.58. Suppose that you invest equally, that is, 50 percent in each of the two markets. Determine the expected return and standard deviation ris

> A foreign exchange trader with a U.S. bank took a short position of £5,000,000when the $/£ exchange rate was 1.55. Subsequently, the exchange rate has changedto 1.61. Is this movement in the exchange rate good from the point of view ofthe position taken

> Japan Life Insurance Company invested $10,000,000 in pure-discount U.S. bonds in May 1995 when the exchange rate was 80 yen per dollar. The company liquidated the investment one year later for $10,650,000. The exchange rate turned out to be 110 yen per d

> The HFS Trustees have solicited input from three consultants concerning the risksand rewards of an allocation to international equities. Two of them strongly favorsuch action, while the third consultant commented as follows:“The risk re

> Explain the pricing spillover effect.

> The Cadbury Code of Best Practice,adopted in the United Kingdom, led to asuccessful reform of corporate governance in the country. Explain the key requirementsof the code and discuss how it contributed to the success of reform.

> Suppose you are interested in investing in the stock markets of seven countries—i.e., Australia, Canada, Germany, Japan, Switzerland, the United Kingdom,and the United States—the same seven countries that appear in Exh

> At the start of 1996, the annual interest rate was 6 percent in the United Statesand 2.8 percent in Japan. The exchange rate was 95 yen per dollar at the time.Mr. Jorus, who is the manager of a Bermuda-based hedge fund, thought thatthe substantial intere

> In problem 2, suppose that Mr. Silber sold SF4,600, his principal investmentamount, forward at the forward exchange rate of SF1.62 per dollar. How wouldthis affect the dollar rate of return on this Swiss stock investment? In hindsight,should Mr. Silber h

> Evaluate the usefulness of relative PPP in predicting movements in foreignexchange rates on: a. Short-term basis (for example, three months). b. Long-term basis (for example, six years).

> The Docket Company of Asheville, NC, USA, is considering establishing anaffiliate operation in the city of Wellington, on the south island ofNew Zealand.It is undecided whether to establish the affiliate as a branch operation or a whollyowned subsidiary.

> As an investor, what factors would you consider before investing in the emergingstock market of a developing country?

> What is a mortgage backed security?

> Using the American term quotes from Exhibit 5.4,calculate a cross-rate matrixfor the euro, Swiss franc, Japanese yen, and British pound so that the resulting triangular matrix is similar to the portion above the diagonal in Exhibit 5.6. Exhibit 5.4: Ex

> Discuss foreign equity ownership restrictions. Why do you think countries impose these restrictions?

> Suppose you are a euro-based investor who just sold Microsoft shares that you hadbought six months ago. You had invested 10,000 euros to buy Microsoft sharesfor $120 per share; the exchange rate was $1.15 per euro. You sold the stock for$135 per share an

> Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industryfor 500 million yen payable in one year. The current spot rate is ¥124/$ and theone-year forward rate is 110/$. The annual interest rate is 5 percent in Japan and8 percent in th

> The Glover Scholastic Aid Foundation has received a €20 million global governmentbond portfolio from a Greek donor. This bond portfolio will be held ineuros and managed separately from Glover’s existing U.S. dollar-deno

> Examine the following summary of the U.S. balance of payments for 2000(in $ billion) and fill in the blank entries. Credits Debits Current Account 1,418.64 774.86 (1) Exports (1.1) Merchandise (1.2) Services (1.3) Factor income (2) Imports (2.1) Merc

> Suppose you are a financial adviser and your client, who is currently investing only inthe U.S. stock market, is considering diversifying into the U.K. stock market. At themoment, there are neither particular barriers nor restrictions on investing in the

> Explain why and how a firm’s cost of capital may decrease when the firm’s stock is cross-listed on foreign stock exchanges.

> What factors would you consider in evaluating the political risk associated with making FDI in a foreign country?

> What operational and financial measures can a MNC take to minimize the political risk associated with a foreign investment project?

> What are the advantages and disadvantages of FDI as compared to a licensing agreement with a foreign partner?

> Define country risk. How is it different from political risk?

> Researchers found that it is very difficult to forecast future exchange rates moreaccurately than the forward exchange rate or the current spot exchange rate. Howwould you interpret this finding?

> Omni Advisors, an international pension fund manager, plans to sell equitiesdenominated in Swiss francs (CHF) and purchase an equivalent amount of equities denominated in South African rands (ZAR). Omni will realize net proceeds of 3 million CHF at the

> Suppose that Baltimore Machinery sold a drilling machine to a Swiss firm and gavethe Swiss client a choice of paying either $10,000 or SF15,000 in three months. a. In the example, Baltimore Machinery effectively gave the Swiss client a free option tobuy

> Do you think that a country’s government should assist private business in the conduct of international trade through direct loans, loan guarantees, and/or credit insurance?

> Salt Lake Company’s 2013 income statement and selected balance sheet data at December 31, 2012 and 2013, follow. RequiredPrepare the cash flows from operating activities section only of the company’s 2013 statement o

> Refer to Satu Company’s financial statements and related information in Problem 12-4B. RequiredPrepare a complete statement of cash flows; report its cash flows from operating activities according to the direct method. In Problem 12-4

> Refer to the information in Exercise 12-10. Using the direct method, prepare the statement of cash flows for the year ended June 30, 2013. In Exercise 12-10 The following financial statements and additional information are reported. Additional Inform

> Refer to the information reported aboutSatu Company in Problem 12-4B. RequiredPrepare a complete statement of cash flows using a spreadsheet as in Exhibit 12A.1; report operating activities under the indirect method. Identify the debits and credits in t

> Forten Company, a merchandiser, recently completed its calendar-year 2013 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on cred

> Refer to the information in Problem 12-7A. RequiredPrepare the cash flows from operating activities section only of the company’s 2013 statement of cash flows using the direct method. In Problem 12-7A Lansing Companyâ€&#153

> Access the March 30, 2012, filing of the 10-K report (for year ending December 31, 2011) ofMendocino Brewing Company, Inc., at www .sec.gov. Required1. Does Mendocino Brewing use the direct or indirect method to construct its consolidated statement of

> Hampton Company reports the following information for its recent calendar year. Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160,000 Expenses Cost of goods sold . . . . . . . . . . . . . . . . . 100,000 Salaries expense . . . . . . . .

> Use the following information to determine this company’s cash flows from financing activities. a. Net income was $35,000. b. Issued common stock for $64,000 cash. c. Paid cash dividend of $14,600. d. Paid $50,000 cash to settle a note payable at its $50

> Refer to Polaris’s financial statements in Appendix A. Compute its profit margin for the years ended December 31, 2011, and December 31, 2010.

> A company reported average total assets of $1,240,000 in 2012 and $1,510,000 in 2013. Its net operating cash flow in 2012 was $102,920 and $138,920 in 2013. Calculate its cash flow on total assets ratio for both years. Comment on the results and any chan

> Where on the income statement does a company report an unusual gain not expected to occur more often than once every two years or so?

> What does a relatively high accounts receivable turnover indicate about a company’s short-term liquidity?

> What does the number of days’ sales uncollected indicate?

> Satu Company, a merchandiser, recently completed its 2013 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debi

> Suggest several reasons why a 2:1 current ratio might not be adequate for a particular company.

> What three factors would influence your evaluation as to whether a company’s current ratio is good or bad?

> Lansing Company’s 2013 income statement and selected balance sheet data at December 31, 2012 and 2013, follow. RequiredPrepare the cash flows from operating activities section only of the company’s 2013 statement of

> Which items are usually assigned a 100% value on (a) a common-size balance sheet and (b) a common-size income statement?

> Explain the difference between financial reporting and financial statements.

> What ratios would you compute to evaluate management performance?

> Visit The Motley Fool’s Website (Fool.com). Enter the Fool’s School (at Fool.com/School).Identify and select the link How to Value Stocks. (Please note the site may ask you to register with your email address. Registration is free and grants access to f

> The following summarized Cash T-account reflects the total debits and total credits to the Cash account of Thomas Corporation for calendar year 2013. (1) Use this information to prepare a complete statement of cash flows for year 2013. The cash provided

> How does inventory turnover provide information about a company’s short-term liquidity?

> Refer to Gazelle Corporation’s financial statements and related information in Problem 12-1B. RequiredPrepare a complete statement of cash flows; report its operating activities according to the direct method. Disclose any noncash inves

> Why is a company’s capital structure, as measured by debt and equity ratios, important to financial statement analysts?

> What is the difference between comparative financial statements and common-size comparative statements?

> Why would a company’s return on total assets be different from its return on common stockholders’ equity?

> You are to devise an investment strategy to enable you to accumulate $1,000,000 by age 65.Start by making some assumptions about your salary. Next compute the percent of your salary that you will be able to save each year. If you will receive any lump-s

> Refer to Golden Corporation’s financial statements and related information in Problem 12-4A. RequiredPrepare a complete statement of cash flows; report its cash flows from operating activities according to the direct method. In Problem

> Assume that David and Tom Gardner of The Motley Fool (Fool.com) have impressed yousince you first heard of their rather improbable rise to prominence in financial circles. You learn of a staff opening at The Motley Fool and decide to apply for it. Your r

> A team approach to learning financial statement analysis is often useful. Required1. Each team should write a description of horizontal and vertical analysis that all team members agree with and understand. Illustrate each description with an example.

> Access the February 17, 2012, filing of the December 31, 2011, 10-K report of The HersheyCompany (ticker HSY) at www.sec.gov and complete the following requirements. RequiredCompute or identify the following profitability ratios of Hershey for its yea

> As Beacon Company controller, you are responsible for informing the board of directorsabout its financial activities. At the board meeting, you present the following information. After the meeting, the company’s CEO holds a press conf

> Key figures for Polaris and Arctic Cat follow. Required1. Compute common-size percents for each of the companies using the data provided. (Round percents to one decimal.) 2. Which company retains a higher portion of cumulative net income in the company

> Refer to the information reported about Gazelle Corporation in Problem 12-1B. RequiredPrepare a complete statement of cash flows using a spreadsheet as in Exhibit 12A.1; report its operating activities using the indirect method. Identify the debits and

> Your friend, Diana Wood, recently completed the second year of her business and just received annual financial statements from her accountant. Wood finds the income statement and balancesheet informative but does not understand the statement of cash flo

> Jenna and Matt Wilder are completing their second year operating Mountain High, a downhillski area and resort. Mountain High reports a net loss of $(10,000) for its second year, which includes an $85,000 extraordinary loss from fire. This past year also

> KTM (www.KTM.com), which is a leading manufacturer of offroad and street motorcycles,along with Polaris and Arctic Cat, are competitors in the global marketplace. Key figures for KTMfollow (in Euro thousands). Cash and equivalents . . . . . . . . . .

> Adria Lopez, owner of Success Systems, decides to prepare a statement of cash flows for herbusiness. (Although the serial problem allowed for various ownership changes in earlier chapters, we will prepare the statement of cash flows using the following f

> Compute cash flows from financing activities using the following company information. Additional short-term borrowings . . . . . . . . . . $20,000 Purchase of short-term investments . . . . . . . . 5,000 Cash dividends paid . . . . . . . . . . . . . . .

> Refer to the information reported about Golden Corporation in Problem 12-4A. RequiredPrepare a complete statement of cash flows using a spreadsheet as in Exhibit 12A.1; report operating activities under the indirect method. Identify the debits and credi

> Compute cash flows from investing activities using the following company information. Sale of short-term investments . . . . . . . . . . $ 6,000 Cash collections from customers . . . . . . . . . 16,000 Purchase of used equipment . . . . . . . . . . . .

> Refer to the data in QS 12-6. 1. How much cash is received from sales to customers for year 2013? 2. What is the net increase or decrease in cash for year 2013? In QS 12-6 CRUZ, INC. Comparative Balance Sheets December 31, 2013 2013 2012 Assets Ca

> Use the following information to determine this company’s cash flows from operating activities using the indirect method. MOSS COMPANY Income Statement MOSS COMPANY For Year Ended December 31, 2013 Selected Balance Sheet Informatio

> Classify the following cash flows as operating, investing, or financing activities. 1. Sold long-term investments for cash. 2. Received cash payments from customers. 3. Paid cash for wages and salaries. 4. Purchased inventories for cash. 5. Paid cash d

> Arundel Company disclosed the following information for its recent calendar year. Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 Expenses Salaries expense . . . . . . . . . . . . . . . . . . . . . . 84,000 Utilities expense .

> Use the following financial statements and additional information to (1) prepare a statement of cash flows for the year ended December 31, 2014, using the indirect method, and (2) analyze and briefly discuss the statement prepared in part 1 with specia

> For each of the following separate cases, compute cash flows from operations. The list includes all balance sheet accounts related to operating activities. Case X Case Y Case Z $ 4,000 $100,000 $72,000 Net income . Depreciation expense 30,000 8,000

> Use the following information about the cash flows of Ferron Company to prepare a complete statement of cash flows (direct method) for the year ended December 31, 2013. Use a note disclosure for any noncash investing and financing activities. Cash and ca

> When a spreadsheet for a statement of cash flows is prepared, all changes in noncash balance sheet accounts are fully explained on the spreadsheet. Explain how these noncash balance sheet accounts are used to fully account for cash flows on a spreadsheet

> Review the chapter’s opener involving TOMSand its young entrepreneurial owner, Blake Mycoskie. Required1. In a business such as TOMS, monitoring cash flow is always a priority. Even though TOMS now has thousands in annual sales and earns a positive net

> Financial data from three competitors in the same industry follow. 1. Which of the three competitors is in the strongest position as shown by its statement of cash flows?2. Analyze and compare the strength of Moore’s cash flow on total

> Golden Corp., a merchandiser, recently completed its 2013 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all deb

> Refer to the data in QS 12-6. Use the direct method to prepare the cash provided or used from operating activities section only of the statement of cash flows for this company. In QS 12-6 CRUZ, INC. Comparative Balance Sheets December 31, 2013 201

> Refer to the data in QS 12-6. 1. How much cash is paid to acquire merchandise inventory during year 2013? 2. How much cash is paid for operating expenses during year 2013? In QS 12-6 CRUZ, INC. Comparative Balance Sheets December 31, 2013 2013 201

> Refer to the data in QS 12-6. 1. Assume that all common stock is issued for cash. What amount of cash dividends is paid during 2013?2. Assume that no additional notes payable are issued in 2013. What cash amount is paid to reduce the notes payable balanc

> Gazelle Corporation, a merchandiser, recently completed its calendar-year 2013 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on

> Refer to the data in QS 12-6. Furniture costing $55,000 is sold at its book value in 2013. Acquisitions of furniture total $45,000 cash, on which no depreciation is necessary because it is acquired at year-end. What is the cash inflow related to the sale

> Use the following balance sheets and income statement to answer QS 12-6 through QS 12-11. RequiredUse the indirect method to prepare the cash provided or used from operating activities section only of the statement of cash flows for this company.

> The following selected information is from the Princeton Company’s comparative balance sheets. The company’s net income for the year ended December 31, 2013, was $48,000. 1. Compute the cash received from the sale of

> The following selected information is from Ellerby Company’s comparative balance sheets. The income statement reports depreciation expense for the year of $18,000. Also, furniture costing $52,500 was sold for its book value. Compute t

> Complete the following spreadsheet in preparation of the statement of cash flows. (The statement of cash flows is not required.) Prepare the spreadsheet as in Exhibit 12A.1; report operating activities under the indirect method. Identify the debits and c

> The statement of cash flows is one of the four primary financial statements. 1. Describe the content and layout of a statement of cash flows, including its three sections. 2. List at least three transactions classified as investing activities in a statem

> Answer each of the following related to international accounting standards. 1. Which method, indirect or direct, is acceptable for reporting operating cash flows under IFRS?2. For each of the following four cash flows, identify whether it is reported und

> Refer to Forten Company’s financial statements and related information in Problem 12-1A. RequiredPrepare a complete statement of cash flows; report its operating activities according to the direct method. Disclose any noncash investing