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business
international financial management

Questions and Answers of International Financial Management

11 EOQ. You have been given the following information relating to an item sold by Paragon Computer Products:1) Annual demand 50,000 units 2) Ordering cost per order £40 3) Carrying cost per item per
12 Stock management. The financial controller of Mexet plc is reviewing the company’s stock management procedures. Stock has gradually increased to 25 per cent of the company’s total assets and,
13 Stock management. Whirlygig plc manufactures and markets automatic dishwashing machines. Among the components which it purchases each year from external suppliers for assembly into the finished
To implement the new arrangements will require reorganisation costs estimated at£10,000 which can be wholly claimed as a business expense for tax purposes in the tax year before the system comes
1 discuss the characteristics and operation of a firm’s credit management policy;
2 evaluate changes in credit policy;
3 explain and apply cash management models;
4 explain and determine the cash cycle.
Calculate the cost of the following discount terms for NewPort Transport, 3 per cent for payment within 7 days otherwise 40 days net.
The financial manager of NewPort Transport, a transport and freight company, estimates that its total cash demand for the coming year will be £3.5m. The conversion cost is estimated at £25 per
You are required to calculate the following:(1) the optimal quantity of cash to withdraw from marketable securities each time the cash balances reduce to zero, that is, the ECQ;(2) the number of
Calculate the cash cycle for Bio-Tech Enterprises for 19×9 and compare with the cycle for 19×8. Comment on your findings.
1 (a) State the main factors which influence a firm’s investment in debtors, (b) Why is it important that a firm’s investment in debtors be controlled? (c) What are the risks of investing in
2 What are the ‘Five Cs’ of credit? Briefly outline the key sources of credit information.
3 Describe the key features of a credit management system.
4 Define the following terms:(a) aged debtors report;(b) cash cycle;(c) marketable securities.
5 What are the assumptions and limitations of the Baumol cash model?
6 Debtor ratios. From the information set out below, calculate the average debtor days for Nirvana Food Products for both the current and previous years:Current year (£) Previous year (£)Trade
7 Cash turnover. From the information set out below, calculate the cash turnover ratio and the average cash holding in terms of days for Harry’s Bar and Restaurant for both the current and previous
8 Operating and cash cycles. Given the following information calculate the operating and cash cycles for O’Malley Enterprises for the current and previous financial year:O’Malley Enterprises Year
9 Miller-Orr cash model. The financial manager of NewPort Transport, a transport and freight company, has estimated the standard deviation of the company’s cash flows to be £500. The marketable
10 Cash cycle. Set out below are extracts from the accounts of the Petersen Clothing Company for the current and previous financial years.Current Year £m Previous Year £m Sales 124 96 Cost of sales
11 Baumol cash model. As a newly appointed financial assistant in Balder Enterprises you have been asked to assist the financial manager determine the Baumol cash model for the company. The financial
12 Cash management models. The treasurer of a local government department is reviewing her cash management procedures. She plans to introduce the use of cash management models and has asked you to
13 Working capital policy and cash management, (a) The treasurer of Ripley plc is contemplating a change in financial policy. At present, Ripley’s balance sheet shows that fixed assets are of equal
1 explain the key factors which influence the choice of finance;
2 identify and evaluate the main sources of short-term business finance;
3 identify and evaluate the main sources of medium-term business finance.
Calculate the cost of forgoing the following discount terms ‘3/10 net 40’ by using the formula in Example 1.
From an analysis of her cash budget the financial manager of Buffet Air Cargo estimates that for the next financial year the company will need a minimum borrowing requirement of £100,000 and a peak
1. An overdraft facility for £150,000 with interest charged at 2 per cent above base rate. At the end of the year the bank will also charge an arrangement or set-up fee of 0.5 per cent of the total
2. A short-term loan of £150,000 with interest charged annually at
3 per cent above base rate. The arrangement fee is similar to the overdraft.
Base rate is currently 10 per cent and any surplus funds can be invested at 5 per cent per year.Calculate the cost of each option. Which seems to be the more costeffective?
1 Briefly explain the key variables which a financial manager should consider in evaluating alternative sources of business finance.
2 Distinguish between spontaneous and non-spontaneous sources of short-term finance. Give examples of each.
3 Summarise the advantages and disadvantages of bank overdrafts and bank loans as sources of short-term finance.
4 Discuss the advantages and disadvantages of leasing as a source of medium-term finance.
5 As a newly appointed assistant to the financial manager of Growfast Ltd you have been asked to assist in preparing an application for a substantial medium-term loan to finance the company’s
6 Factoring services. Your friend John owns and operates Craft Catering, a mediumsized catering service business, which has supply contracts with leading airlines, local pubs, and supermarket chains.
7 Working capital management—general.(a) Discuss:(i) the significance of trade creditors in a firm’s working capital cycle, and(ii) the dangers of over-reliance on trade credit as a source of
8 Factoring and invoice discounting. Distinguish between factoring and invoice discounting, explaining the benefits which companies obtain from each.
9 The Interest Yield Curve. You are required(i) to explain what is meant by the Interest Yield Curve, illustrating your explanation numerically and with a freehand graph;(ii) to suggest what
10 Leasing versus purchase. Rembrandt Reprographics, a specialist printing and publications design company, has decided to acquire state-of-the-art printing and reprographics equipment at a purchase
11 Leasing versus purchase. MRF is a charitable organisation and exempt from all taxes. It is about to acquire some new capital equipment for a special project. The President of the charity has been
12 per cent interest. Your boss, Helen, has asked you to advise her whether the lease terms could be reduced so as to be competitive with the bank loan. The leasing company pays tax at the marginal
12 Financing. Assume you are a consultant to a small engineering company that wishes to borrow £400,000 to expand. The annual turnover is £2 million, pre-tax profits are £280,000 and 35 staff are
13 Evaluating alternative sources of financing. Oldsyl Ltd expects to need to borrow an average of £550,000 during the next year. Borrowing is expected to be as low as £500,000 at some times during
14 Working capital—various. Bardsey plc operates a chain of city centre furniture stores, specialising in high quality items. It is 60 per cent owned by the original family founders. Its sales over
1 For the two years given in the accounts, analyse and compare each company’s working capital structure. Calculate their respective working capital ratios, operating and cash cycles.Have there been
2 Can you identify their respective working capital policies? Is it possible to explain any variations? Briefly discuss any difficulties you encounter in making your comparisons.
3 Do the annual reports refer to any particular problems or future developments with regard to working capital management?Highlight these in your analysis.
1 explain the role and goal of financial management in a modern business enterprise;
2 explain the financial management process; and
3 understand the role of the core concepts in financial management.
A company with an issued share capital of 3 million ordinary shares and an investment of £17,714,000 has reported the following financial results (figures are in £000s):Operating profit £2,480;
Identify which of the following represent investment, financing, or other types of decisions for a food manufacturing company:1 ) Building an extension to the factory.2 ) Arranging a long-term loan
(a) What do you consider would be the main financial objectives of:(i) a hotel and restaurant company?(ii) an NHS Hospital Trust?(b) What actions might the manager of an hotel take to improve profits
Given the following information for Oakgrove Enterprises, calculate the company’s free cash flow. Figures in £000s.Dividends £38, interest £21, operating profit £364, capital expenditure £109,
Briefly explain what is meant by the risk-return trade-off.
1 (a) Do you consider shareholder wealth maximisation to be a valid objective for a commercial firm? Give reasons for your answer.(b) Is a commercial firm likely to have objectives other than
2 Why is profit maximisation not considered a valid goal in financial management?
3 (a) What are the fundamental concepts of financial management? (b) How do they relate to the goal of the firm?
4 (a) How are risk and return related in financial decision-making? (b) When faced with an identical risk-return relationship for an investment, are all managers or investors likely to make the same
5 Explain the difference between strategic and operational financial decisions.
6 What is the financial management process? Outline its various stages.
7 Profitability planning. WestWood Leisure is a rapidly growing company which owns a number of health clubs and leisure centres. Presented below is summary financial information for the current year
8 Liquidity planning. You have now been requested to calculate WestWood’s free cash flow (FCF) for the current and future years. The following information is relevant:• Depreciation is to be
1 define the role of the financial manager including treasury management;
2 explain how issues of agency and stakeholder theory impact on financial decisionmaking and the goal of the firm;
3 explain the role of corporate governance and ethics in financial decision-making.
Recalculate Davies gearing ratio, assuming the company raised an additional £1 million long-term loan to finance the acquisition of new fixed assets.
Identify which aspect of a company’s risk is likely to be affected by the following:1. Raising an additional, variable interest rate, loan from a financial institution.2. goods on credit to a
Identify which of the following activities are not the responsibility of the financial manager or treasurer.1) Securing adequate funding for the organisation.2) Preparing the annual report and
Why would a company’s managers be interested in knowing who the company’s shareholders are?
Assume you are the financial director of a public company which has been experiencing a decline in financial performance. At a board meeting it is being proposed that all directors and senior
Assume you are the financial director of a company which has been experiencing a decline in financial performance. It is approaching the next annual general meeting
1 (a) What are the key activities of the financial manager? (b) What is the goal of these activities?
2 (a) What is meant by the terms agency problem and agency costs? (b) How may the agency problem be managed or resolved?
3 Apart from the shareholders, who are a commercial firm’s other stakeholders? What are the benefits to an organisation (public or private sector) of considering the interests of other stakeholders?
4 What do you understand by the term ‘corporate governance’? What are its aims and objectives?
5 Why do you think ethics has become such a prominent issue for business managers in recent years?
6 The treasury function. ABC plc is a UK-based service company with a number of wholly-owned subsidiaries and interests in associated companies throughout the world. In response to the rapid growth
7 The goal of the firm. The primary financial objective of companies is usually said to be the maximisation of shareholders’ wealth. Discuss whether this objective is realistic in a world where
8 Corporate governance. Discuss the arguments for and against the introduction of statutory controls on corporate governance.
9 Agency theory. Agency theory presents the firm as a combination of competing interest groups, two of which are shareholders and management.You are required to discuss how the firm’s attitude to
10 Treasury management. Glass Industries Ltd manufactures glass containers for the food, drinks, and pharmaceutical industries. The company’s summarised profit and loss account for the current year
1 understand the nature and role of the financial environment;
2 discuss the respective roles of financial markets, financial institutions and financial instruments;
3 define the role of the financial manager in the financial environment.
Summarise the main functions of financial markets in relation to the corporate firm.
Explain why a corporate treasury department may prefer to issue securities in the euromarkets rather than domestic markets.
What do you consider would be some of the difficulties for suppliers and demanders of funds in the absence of financial intermediaries?
Can you think of an example of how the financial system enables:(a) an individual investor to reduce investment risk?(b) an individual or company to share or transfer risks?
What are the main forms of long-term capital which a company can raise? How do their characteristics compare?
If the market price of a Treasury bill falls to £97, calculate the annualised rate of return. Before attempting the calculation, do you think the rate of return will be higher or lower than that
1 (a) Describe the financial environment in which the business firm operates, (b)Explain the financial manager’s role in this environment.
2 (a) What are financial markets? (b) Discuss their role in the financial management of the firm, (c) Distinguish between (i) money and capital markets and (ii) primary and secondary markets.
3 Explain the role and function of merchant and investment banks.
4 Explain the following terms: derivatives; disintermediation; euromarkets;eurocurrency market; eurobond; securitisation.

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