Fabozzi Frank, Peterson Pamela. Financial Management and Analysis Workbook
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240 QUESTIONS AND PROBLEMS
analyst assess the financial ______________ of a company.
______________ companies tend to have relatively stable
relations among the cash flows while ______________
companies exhibit declining cash flows from
______________ and financing and ______________ cash
flows for investment one and two years prior to the bank-
ruptcy. Further, ______________ companies tend to
expend ______________ cash flows to financing sources
than they bring in during the year prior to bankruptcy.
SHORT ANSWER QUESTIONS
Refer to Chapter 24, pages 797–817 in Financial Manage-
ment and Analysis.
1. What is cash flow and how is it measured?
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Cash Flow Analysis 241
2. Explain the direct and indirect method of reporting cash
flow.
3. What are the patterns of the cash flows for the different
types and maturities of firms?
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242 QUESTIONS AND PROBLEMS
4. What is free cash flow and why is its important?
5. What can cash flow analysis reveal?
PROBLEMS
Refer to Chapter 24, pages 797–817 in Financial Manage-
ment and Analysis.
1. Calculate free cash flow, net free cash flow, and net cash
flow for the Krunchy Krust Donuts Company. Their
financials are as follows:
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Cash Flow Analysis 243
Krunchy Krust Donuts, Income Statement, in millions
Krunchy Krust Donuts, Statement of Cash Flows, in millions
Total Revenue $56
Cost of revenue $3
Gross profit $53
Operating Expenses
Selling general and administrative expenses $8
Nonrecurring ($1)
Other operating expenses $2
Operating income $24
Total other income and expenses net ($1)
Earnings before interest and taxes $21
Interest expense $2
Income before taxes $19
Income tax expense $7
Net Income $12
Net Income $12
Cash Flow Operating Activities
Depreciation $4
Adjustments to net income $13
Changes in Operating Activities
Changes in accounts receivables ($3)
Changes in liabilities ($10)
Changes in inventories ($2)
Changes in other operating activities ($2)
Cash flows from operating activities $12
Cash Flow Investing Activities
Capital expenditures ($15)
Investments $7
Other cash flows from investing activities ($31)
Cash flows from investing activities ($39)
Cash Flow Financing Activities
Sale/Purchase of stock $8
Net borrowings $3
Other cash flows from financing activities ($2)
Cash dividends paid ($2)
Cash flows from financing activities $7
Change in cash and cash equivalents ($20)
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CHAPTER
25
245
International Financial
Management
FILL IN THE BLANKS
Refer to Chapter 25, pages 823–858 in Financial Manage-
ment and Analysis.
1. Financial management decisions of most firms are not con-
fined to ______________ borders. Many ______________
and ______________ decisions involve economies and firms
outside a firm’s own domestic borders either directly,
through ______________ transactions, or indirectly,
through the effects of international issues on the
______________ economy. International ______________
management is the management of a firm’s assets and lia-
bilities considering the ______________ economy in which
the firm operates.
2. Trends and agreements throughout the twentieth century
reduced ______________. The General ______________ on
______________ and Trade (GATT) is a forum for negoti-
ating the reduction in trade ______________ on a multilat-
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246 QUESTIONS AND PROBLEMS
eral basis. Monetary cooperation and international trade
is facilitated through the ______________ Fund
(______________). The ______________ Union (E.U.) is an
organization whose goal is to increase ______________
cooperation and integration among its European member
countries. The North ______________ Free ______________
Agreement (______________) is a pact among Canada,
Mexico, and the United States for the gradual removal of
trade barriers for most ______________ produced and sold
in North America.
3. A(n) ______________ company is a firm that does business
in two or more ______________. Most large U.S. corpora-
tions are ______________ firms, deriving a large part of
their income from operations beyond the U.S.
______________. Companies expand beyond their
______________ borders for many reasons, including: To
gain access to new ______________, to achieve
______________ efficiency, to gain access to ______________,
to reduce political and regulatory ______________, to diver-
sify, and to gain access to ______________.
4. Financial managers must be aware of the issues relating to
multiple ______________. In particular, the financial man-
ager must be aware of ______________ rates and the related
______________ risk. The ______________ rate is the num-
ber of units of a given currency that can be purchased for
one unit of another country’s ______________; the
exchange rate tells us about the relative ______________ of
any two currencies. Currency risk or ______________ risk is
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International Financial Management 247
the risk that the relative values of the domestic and foreign
currencies will ______________ change.
5. When a currency ______________ value relative to other
currencies, we say that the currency has ______________ if
the change is due to changes in supply and demand, or
been ______________ if the change is due to government
intervention. If the currency ______________ value rela-
tive other currencies, we say that the currency has
______________ or been ______________.
6. If there are ______________ barriers or costs to trade
across borders, the ______________ of a given product
will be the ______________ regardless of where it is sold.
This is referred to as the law of ______________ price:
Where there are different ______________ on either side of
the border, after adjusting for the difference in currencies,
the ______________ of a good or service is the same across
borders. In the case of different currencies, the law of one
price is known as ______________ (______________).
7. Taxes paid by corporate entities can be classified into two
types: ______________ taxes and ______________ taxes.
The former includes taxes paid to the ______________
government based on ______________ income and possi-
bly any ______________ income taxes. Indirect taxes
include real estate appreciation, ______________ taxes,
and miscellaneous taxes on ______________ transactions.
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248 QUESTIONS AND PROBLEMS
8. It is common for a company’s ______________ in different
countries to buy and sell goods from each other. The price
for the goods in such ______________ transactions is
called a(n) ______________ price. Establishing transfer
prices to promote goal ______________ within a(n)
______________ company is a complicated topic. In prac-
tice, a primary goal in the establishment of transfer prices
is the minimization of worldwide ______________,
______________ taxes and ______________ duty taxes.
9. A corporation is not limited to raising funds in the capital
market where it is domiciled. ______________ means the
______________ of capital markets throughout the world
into a global capital market. From the perspective of a
given country, capital markets can be classified into two
markets: either a(n) ______________ market or a(n)
______________ market, and a(n) ______________ market.
It can be decomposed into two parts: the ______________
market and the ______________ market. The ______________
market is where issuers ______________ in the country
issue securities and where those securities are subsequently
______________.
10.The world capital markets can be classified as either com-
pletely ______________ or completely ______________. In
a completely ______________ capital market, investors in
one country are ______________ permitted to invest in the
securities issued by an entity in another country. In a com-
pletely ______________ capital market there are
______________ restrictions to prevent investors from
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International Financial Management 249
investing in securities issued in any capital market
throughout the world. Real-world capital markets are
______________ completely segmented nor completely
integrated, but fall somewhere in between and are
______________ segmented or ______________ integrated.
11.A corporate treasurer seeking to raise funds via a(n)
______________ offering can issue in the ______________
sector of another country’s bond market or the
______________. The distinguishing features of the securi-
ties in this market are that they are ______________ by an
international syndicate, at issuance they are offered
______________ to investors in a number of countries,
they are issued ______________ the jurisdiction of any sin-
gle country, and they are in ______________ form. The
sector of the Euromarket in which bonds are traded is
called the ______________ market.
12.The important elements of cash flows, ______________ of
capital, and analysis are present in the ______________
capital budgeting decision whether the investment is
______________ or ______________. There are several
sources of the added complexity: ______________ currency
risk, restrictions on ______________, and ______________
risk. These risks and ______________ affect not only an
investment’s cost of ______________ but also make the
estimation of cash flows all the more difficult.
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