International-Financial-Management---Bekaert-2e---Solutions---Ch19 (1).doc

International-Financial-Management---Bekaert-2e---Solutions---Ch19 (1).doc

《International-Financial-Management---Bekaert-2e---Solutions---Ch19 (1).doc》由会员分享，可在线阅读，更多相关《International-Financial-Management---Bekaert-2e---Solutions---Ch19 (1).doc（11页珍藏版）》请在冰豆网上搜索。

11

Chapter19:

ManagingNetWorkingCapital

Chapter 19

ManagingNetWorkingCapital

QUESTIONS

1.Whatisnetworkingcapital?

Whyshoulditbeconsideredaninvestmentthatafirmmustmaketoincreaseitsfutureprofitability?

Answer:

Everycorporationmaintainsastockofcurrentassetsandcurrentliabilitiestobuffertheinflowsandoutflowsofcashgeneratedbythefirm’sbusiness.Thetermworkingcapitalreferstothestockofcurrentassetsconsistingofcash,marketablesecurities,accountsreceivable,andinventoriesheldbyafirmatanypointintime.Bysubtractingthevalueofafirm’scurrentliabilities,whicharethecorporation’sshort-termdebtsanditsaccountspayable,fromitsstockofworkingcapital,wearriveatitsnetworkingcapital.Totheextentthatafirmcanbemanagedwithasmallerstockofnetworkingcapital,cashcanbepaidtoshareholders.Thus,onegoalofmanagementistorunacorporationefficientlyinordertominimizetheneedfornetworkingcapital.

Increasesinnetworkingcapitalareinvestmentsthatafirmmakestoproducecashinthefuturebecausetheyusecashthatcouldotherwisebedistributedtoshareholders.Ifthecashthatisinvestedinnetworkingcapitaldoesnotearntheweightedaveragecostofcapital,itshouldbepaidtothefirm’sinvestors.

2.Whatdistinguishesinternationalcashmanagementfrompurelydomesticcashmanagement?

Inparticular,whatconstraintsariseintheinternationalenvironment?

Answer:

Thegoalsofaninternationalmoneymanagerofamultinationalcorporationare

（1）toestablishcontroloverthecashresourcesoftheorganization,

（2）toinvestexcessshort-termfundsinanoptimalway,and（3）toobtainshort-termfinancingatthelowestcost.Establishingcontroloverthecashresourcesofanorganizationnecessitatescreatingareportingsystemthatprovidestimelyandaccurateinformation.Whentheinformationisavailable,theinternationalcashmanagercantrytoimproveuponthecashdisbursementstoandcollectionsfromitsforeignaffiliates.Bysynchronizingtheflowsoffunds,theinternationalcashmanagercanlowerthecostofmovingfundsamongthem.Thesegoalsarenodifferentthanthoseofapurelydomesticcashmanagerwhotransfersmoneyfromoneaccounttoanother（orfromonesubsidiarytoanother）sothatthefirmhasanoptimalamountofworkingcapital.However,thereareconstraintsoninternationalcashmanagementthatdomesticmanagersdonotface.Theseconstraintsincludegovernmentrestrictionsonthetransfersoffunds,taxesthatdependonthetypeoffundtransfer,transactioncostsintheforeignexchangemarket,andproblemsmaintainingtheliquidityofallforeignaffiliates.

3.Whyisitimportantforaforeignaffiliatetohaveawell-defineddividendpolicyforrepatriatingprofitstoitsparentcorporation?

Answer:

Itisoftenadvantageousforamultinationalcorporationtohaveanestablisheddividendpolicythatitcaneasilydefendifgovernmentofficialsofthehostcountryquestionittoavoidproblemsrepatriatingprofitsfromabroad.Withoutsuchapolicyorahistoryofdividendpayments,anMNCmayhavedifficultyexplainingthereasonforanygivenyear’sdividendpayment.

Ifthehostcountryishavingdifficultyfinancingitsbalanceofpayments,itmayappeartothegovernmentthattheMNC’sdividendpaymentisactuallyanattemptbythecompanytoexportcapitalfromthecountryinatimeofcrisis.Evenifagovernmentblocksthedividendsandnotransferscanbemade,manyfirmsfindittotheiradvantagetoatleastdeclareadividendinordertoestablishitsvalidityincasethegovernmentlaterrelaxesitsforeignexchangerestrictions.

Somecorporationsalsoseta“common”dividendrepatriationrateforalltheirforeignaffiliatesindifferentcountries.Thisapproachestablishesthattheshareholdersoftheparentcorporationdemandacertainshareoftheearningsofallofthecorporation’sforeignsubsidiariesandarenotmerelytryingtotakecapitaloutofoneparticularcountry.

4.Whatisthedifferencebetweenaroyaltyandafee?

Answer:

Royaltiesarepaymentsmadetotheownersofatechnology,apatent,oratrademarkfortheuseofthetechnologyortherighttomanufactureunderthepatentorthetrademark.Assuch,royaltypaymentsarepureprofitsinthesensethatthefirmreceivingthemperformsnocurrentservicesandincursnocurrentcoststoreceivethepayment.Thus,royaltiescanbeasubstantialsourceofincomeforthefirmthatisreceivingthem.

Parentcorporationsalsoassessfeesfortheservicestheyprovidetotheiraffiliates,includingmanagementandtechnicalconsultingservicesandfeestorecoveroverheadcostsassociatedwithday-to-dayoperationstheparentperformsfortheforeignaffiliate.Thesecostsincludetheforeignaffiliate’sshareoftheresearchanddevelopme