MS-41 Dec-2009
MS-41 : Working capital management
1. As the difference between the cost of short term financing and long term financing becomes smaller, which financing plan aggressive as conservative becomes more attractive ? Would the aggressive or conservative approach be preferable if the costs were equal ? Why ?
2(a) Explain the role of Cash Forecasting in cash management. Describe briefly any two methods of cash forecasting.
(b) Explain the Miller-Orr model with the help of a suitable example.
3. Discuss the different methods of creating a charge over the assets of the borrower which could be used by banks for safeguarding their interests.
4. Distinguish between the following :
a) Permanent working capital and variable working capital.
b) Options and warrants.
c) VED Analysis and F-S-N Analysis.
d) Public deposits and certificate of deposits.
5. Alpha company's present annual sales amount to Rs. 30 lacs at sale price of Rs. 12 per unit. Variable costs are Rs. 8 per unit and fixed costs amount to Rs. • 2.50 lacs per annum. Its present credit period is one month which is proposed to be extended to eithër 2 or 3 months, whichever appears to be more profitable. The following estimates are made for the purpose :
|
Credit policy |
1 month |
2 months |
3 months |
|
Increase in sales (%) |
Nil |
8 |
30 |
|
% of bad debts to sale |
1 |
3 |
6 |
Fixed cost will increase by Rs. 50,000 annually after any increase in sales above 25% over the present level. The company requires a pre tax return on investment of at least 20% for the level of risk involved. What will be the most rewarding credit policy in case of Alpha company under the above circumstances ?
6. (a) What do you understand by Commercial Paper ? Explain the important guidelines
issued by Reserve Bank of India for the issuance of Commercial Paper.
(b) What is the meaning of the term factoring ? Explain its significance and mechanism and distinguish between with recourse factoring from without recourse factoring.
7. What do you understand by Trade Credit ? Is Trade Credit a free of cost source of financing working capital requirements ? Give reason. Discuss the different factors that determine the availability of Trade Credit to a firm.
8. Write short notes on any four of the following :
a) Decision tree model
b) Selective credit controls
(c) Gross profit ratio
d) Baumol model
e) C's to determine creditworthiness of a customer
(f) Euro Currency Market
