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Ms-41 Question bank

Ms-41 Question bank (12)

Ms-41 Question bank

MS-41   june-2008

MS-41 : Working capital management

1, Explain the concepts of gross and net working capital. How would you plan the working capital requirements of a firm in the long term ?

2. Why do firms hold cash and marketable securities ? Discuss the various methods through which firms recognise and manage the uncertainty associated with cash flow variation.

3. XYZ Ltd. is evaluating a project casting Rs. 96 lakhs interest @ 10%o p.a. payable every month}. Find out the worrking capital requirement of the project based on the follorving information :

i Sales : Rs. 25,00,000 per month (20% cash 80%  on one month credit)

{ii) Cost structure : Rs . 17,00,000 Per month consisting of

a) 30%  material cost (Payable after 30 days)

b) Wages 15% (Payable in the beginning of a month)

(c) Fixed overheads 55o/o including depreciation @ 10% on project cost. The remaining fixed overheads ar€ payable uniformly every month.

iii) Selling costs : Rs. 3,00,000 Per month.

iv) Inventory required : Finished Goods - 45 days sale.

                                        Materials - 15 days requirement.

(v) There is a working capital limit of Rs' 7,50,000 sanctioned by the bank.

4. (a) Describe the terms and commercial paper may be India. Also explain the commercial paper. conditions on which issued by companies in procedure for issuing commercial paper

(b) What do you understand by factoring of receivables ? Discuss its mechanism and advantages.

5. Briefly discuss the following statements :

(i) Overextension of trade credit is a major factor responsible for financial difficulties of most companies that fail.

(ii) Credit policy can also be used to change the product life cycle and investment pattern.

(iii) The hedging principle provides on important guide regarding the appropriate use of short term credit for working capital financing.

(iv) The basic challenge before a finance manager in the management of working capital is that of Liquidity vs. Profitability.

6. A company's requirements of an item costing Rs' 10 per unit is 6,300 units per annum. The ordering cost is Rs. 10 per order and the carrying cost is Re' 0'26 per unit per annum. The following is the schedule of discount applicable to the company :

Order size

% discount

1-999

0

1000-1499

0.10

1500-2499

0.15

2500-4999

0.30

5000 and above

0.50

Determine the economic order quantity without discount and with discount.

 

7 .Discuss the relationship between the 'profitability' and liquidity, and its impact on the working capital decisions, with the help of an example.

8. Distinguish between the foliowing :

(a) Permanent working capital and Variable working capital

(b) secured advances and Guaranteed advances

(c) Legal mortgages and Equitable mortgages

{d} Eurodoilar market and Eurobond market

MS-41   june-2009

MS-41 : Working capital management

solved papers of ms-41 from mehta solutions

MS-41   june-2010

MS-41 : Working capital management

 

1. Explain the concepts of Working Capital. Discuss the various factors that affect the requirement of Working Capital of a business entity.

2.Why do firms hold cash and marketable securities ? Discuss the internal factors that affect the cash flows of firms.

3. Discuss the guidelines issued by the Reserve Bank of India regarding the issuance of commercial paper by companies in India. Also explain the procedure for issuing commercial paper.

4. Discuss the various methods of creating charge over the assets of the borrower in favour of the lender bank. Distinguish between Legal Mortgage and Equitable Mortgage.

5. Discuss the salient features, merits and demerits of :

a) Cash credit system

b) Loan syndication

6. (a) What do you understand by Prudential Norms for exposure limits ?

(b) Explain the Turnover Method of assessing working capital needs.

7. Write short notes on any four of the following :

a) Foreign financial markets

b) Consortium lending

(c) Baumol model

d) Derivative Usance Promissory Notes

e) Letter of Credit

(f) Euromarkets as a source of financing

8. Zen Sports, a manufacturer of atheletic equipment, is currently selling Rs. 50,00,000

annually to dealers on 30-day credit terms. Management believes that sales could be

substantially increased if dealers carried more inventory; however dealers are unable to finance their inventory. As a result, the management is considering changing credit policy. The average collection period is now 30 days. Variable cost is 70% and fixed cost is Rs. 5,00,000. Required (pre-tax) rate of return on investment is 20%. The following information is available :

Credit policy

Average collection period

Annual sales Rs

A

B

C

D

45 days

60 days

75 days

90 days

5600000

6000000

6500000

7200000

 

a) Determine which policy Zen should adopt ?

b) Discuss the implicit assumptions made by the incremental profit/incremental investment approach to decision making.

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