Multinational companies are exposed to complex management and allocation of their resources. A multinational company's cash management, creditmanagement, inventory management, and so on, need to have several additional elements factored in compared with those of a purely domesticcorporation.Multinational Inventory ManagementDecisions related to amount of investment in inventory and inventory policy need to factor in the following:* Exchange rates. Possibility of import and export quotas or tariffsTax consequencesPossibility of at-sea storageConsider this case:Streep Inc. is a U.S.-based multinational firm with a subsidiary in Switzerland. Last week, Streep created its periodic financialstatements, and the subsidiary had SFr 80,000 worth of inventory on its balance sheet. Streep translated the value of inventory usingthe spot exchange rate at that time of $0.8153 / SFr and recorded that value on its consolidated balance sheet.However, this week the exchange rate changed dramatically to $0.9025 / SFr. The subsidiary still has the same amount of inventory(valued at SFr 80,000)If the firm were to create a new consolidated balance sheet and translate the value of its inventory at the new spot exchange rate, what would happento the dollar value of inventory?O It would decrease by $6,976.O It would decrease by $8,371.It would increase by $7,674.It would increase by $6,976.The change in inventory value was created purely by accounting and exchange rate factors, because the subsidiary still has the same inventory andassets in place. However, this change would affect Streep's consolidated financial statements and ratios. Assuming no other changes occurred, whateffect would this have on Streep's current ratio?O The current ratio would increase.O The current ratio would decrease.

Question
Asked May 2, 2019
Multinational companies are exposed to complex management and allocation of their resources. A multinational company's cash management, credit
management, inventory management, and so on, need to have several additional elements factored in compared with those of a purely domestic
corporation.
Multinational Inventory Management
Decisions related to amount of investment in inventory and inventory policy need to factor in the following:
* Exchange rates
. Possibility of import and export quotas or tariffs
Tax consequences
Possibility of at-sea storage
Consider this case:
Streep Inc. is a U.S.-based multinational firm with a subsidiary in Switzerland. Last week, Streep created its periodic financial
statements, and the subsidiary had SFr 80,000 worth of inventory on its balance sheet. Streep translated the value of inventory using
the spot exchange rate at that time of $0.8153 / SFr and recorded that value on its consolidated balance sheet.
However, this week the exchange rate changed dramatically to $0.9025 / SFr. The subsidiary still has the same amount of inventory
(valued at SFr 80,000)
If the firm were to create a new consolidated balance sheet and translate the value of its inventory at the new spot exchange rate, what would happen
to the dollar value of inventory?
O It would decrease by $6,976.
O It would decrease by $8,371.
It would increase by $7,674.
It would increase by $6,976.
The change in inventory value was created purely by accounting and exchange rate factors, because the subsidiary still has the same inventory and
assets in place. However, this change would affect Streep's consolidated financial statements and ratios. Assuming no other changes occurred, what
effect would this have on Streep's current ratio?
O The current ratio would increase.
O The current ratio would decrease.
help_outline

Image Transcriptionclose

Multinational companies are exposed to complex management and allocation of their resources. A multinational company's cash management, credit management, inventory management, and so on, need to have several additional elements factored in compared with those of a purely domestic corporation. Multinational Inventory Management Decisions related to amount of investment in inventory and inventory policy need to factor in the following: * Exchange rates . Possibility of import and export quotas or tariffs Tax consequences Possibility of at-sea storage Consider this case: Streep Inc. is a U.S.-based multinational firm with a subsidiary in Switzerland. Last week, Streep created its periodic financial statements, and the subsidiary had SFr 80,000 worth of inventory on its balance sheet. Streep translated the value of inventory using the spot exchange rate at that time of $0.8153 / SFr and recorded that value on its consolidated balance sheet. However, this week the exchange rate changed dramatically to $0.9025 / SFr. The subsidiary still has the same amount of inventory (valued at SFr 80,000) If the firm were to create a new consolidated balance sheet and translate the value of its inventory at the new spot exchange rate, what would happen to the dollar value of inventory? O It would decrease by $6,976. O It would decrease by $8,371. It would increase by $7,674. It would increase by $6,976. The change in inventory value was created purely by accounting and exchange rate factors, because the subsidiary still has the same inventory and assets in place. However, this change would affect Streep's consolidated financial statements and ratios. Assuming no other changes occurred, what effect would this have on Streep's current ratio? O The current ratio would increase. O The current ratio would decrease.

fullscreen
check_circleExpert Solution
Step 1

Question 1:

Calculate the change in the dollar value of inventory:

fullscreen
Step 2

Question 2:

The correct answer is “the current ratio will increase”.

Justification: An increase in the total value of inventory will increase the total v...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour*

See Solution
*Response times may vary by subject and question
Tagged in

Business

Finance

Related Finance Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: NoGrowth Corporation currently pays a dividend of $2.08 per​ year, and it will continue to pay this ...

A: Cost of Equity: It is the cost of the company while raising finance by issuing equity. It is earning...

question_answer

Q: The prices of a certain security follow a geometric Brownian motion with parameters mu=.12 and sigma...

A: Let's pull together all the variables of Black Scholes Model:S = Current stock price = 40K = Strike ...

question_answer

Q: In a case that A firm's cost of capital is 12 percent. The firm has three investments to choose amon...

A: NPV is calculated using following formula.

question_answer

Q: Robinson's has 46,000 shares of stock outstanding with a par value of $1 per share and a market pric...

A: The firm announces the stock split of 2-for-1.

question_answer

Q: R.S. Green has 250,000 shares of common stock outstanding at a market price of $28 a share. Next yea...

A: Cost of Equity:Cost of equity is the amount or rate which a company bears for the issue of share. In...

question_answer

Q: A stock currently trades for $115. January call options with a strike price of $100 sell for $16, an...

A: Recall the call pur parity equation in case of a European option:C + PV (K) = S + PWhere C = Price o...

question_answer

Q: Romagnoli Company is considering a 3-year investment project that involves the purchase of a new man...

A: Since we have to handle multiple variables here, we will use Microsoft Excel to get the final answer...

question_answer

Q: If the interest rate per day is 0.014%, then what is the annual rate?

A: Interest rate:An interest rate is a percentage on the principal amount at which a lender gives money...

question_answer

Q: Deb and Rusty have just gotten married and wish to buy a home. They both work in Boston and have a c...

A: Let the largest amount they can use for a down payment be $ A.Cost of the house, C  = $ 350,000Hence...