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Ms-41 Question bank

Ms-41 Question bank (11)

Ms-41 Question bank

June, 2013


 1. Explain the concept of working capital and mention the important objectives of working capital management. Discuss the impact of inflation on working capital.

 2. Explain the walker's approach to investment in working capital. Explain the profitability -solvency tangle in the current asset holding.

 3. Household Appliances Ltd. deals with consumer durables having an annual turnover of

Rs.80 lakhs, 75% of which are credit sales effected through a large number of dealers, while the balance sales are made through show rooms on cash basis. Normal credit allowed is 30 days. The company proposes to expand its business substantially and there is good demand as well. The finance manager proposes the following two plans for a change in the credit policy :



Credit Period

Anticipated Credit Sales Rs. lakhs

Plan I

60 days


Plan II

90 days



The product yields an average contribution of 25% on sales. Fixed costs amount of Rs. 5 lakhs per annum. The company expects a pre-tax return of 20% on capital employed. The finance manager has also recommended increasing the provision for bad debts from the current 1% to 1.5% for Plan I and to 2% for Plan II. Evaluate the merits of the new proposals and recommend the best proposal.


4. Explain the Baumol's model and Miller - orr cash management models.


5. Write short notes on the following :

(a) Prudential norms for credit exposure limit for banks.

(b) Discounting of bills

(c) Syndication of credit

(d) Bridge loans


6. (a) What is meant by Commercial Paper ? Explain the guidelines issued by Reserve

Bank of India for the issuance of commercial paper by companies.

(b) What is factoring of Receivables ? Explain its mechanism and importance.

 7. Explain the cost of liquidity and illiquidity. What is the impact of these costs on the level of the current assets ?

 8. Discuss the types and determinants of trade credit. What are the costs involved in taking credit ?

MS-41   june-2007

MS-41 : Working capital management

1. Explain the concepts of gross and net working capital. Explain how would you plan the working capital requirement af a firm in the short term ?

2. Explain the Bierman-McAdams model that helps the financial managers in funds management of a firm. Also discuss the models which guide hlm in deciding the process of switching funds from marketable securities to cash and vice versa.

3. a) What are lhe basic reasons for which firms hold cash and marketable securities ?

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









5000 and above


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

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