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Ms-41 Question bank

Ms-41 Question bank (11)

Ms-41 Question bank

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.

MS-41   june-2011

MS-41 : Working capital management

1. Explain the distinguishing features of matching, conservative and aggressive strategies for financing working capital with the help of illustrations. Under which circumstances each of these are suitable ?

2. Discuss the critical variables of Cash flow forecasting and the different forecasting approaches of cash flow.

3. Write notes on :

(a) Commercial Bill market

(b) Commercial Paper.

4. Discuss the features of 'Factoring' and 'company deposits as source of working capital finance. Why is factoring yet to be popular in India ? Give reasons.

5. Omega Ltd. has investigated its cost of funds and their Profitability and found that current assets earn six percent where as fixed assets earn 13 percent. Cost of current liabilities is three percent and average cost of long term funds is 10 percent. The current year balance sheet reveals the following information.

(Rs. in thousand)

Liabilities

Share capital

Term loans

Bank overdraft

Payables

 

Rs

20000

50000

7000

3000

80000

Assets

Plant and Machinery

Land and Building

Stock

Cash in Bank and Hand

Rs

30000

30000

10000

10000

80000

 

You are to comment on overall profitability of Omega Ltd.

The company proposes to lower its net working capital to Rs 7,000 by (a) either shifting Rs 3,000 of its long term loans to bank overdraft or (b) buying one more machine by paying cash. You are to suggest which of these two alternatives should be preferred and why. Do you approve of implementing both the alternatives simultaneously.

6. (a) How would you assess the credit worthiness of a customer ?

(b) A company is manufacturing spare parts and selling it at Rs 10 per unit. Variable cost is Rs 7 per unit. Total sale of a year is 2,40,000 units with per unit cost of production Rs 9. As per present credit policy company allows a credit of 2 months with a 3 percent default and expense of Rs 50,000 for collection. The company has two proposals for replacing the present credit policy with following details.

Proposals Credit period     Collection                           Expense Default

X             1.5 month        Rs. 75,000                                            2

Y               1 month       Rs. 1,50,000                                           1

If the company has a required rate of return of 20 percent which of the two programmes the company should adopt.

7. What is the significance of Inventory control ? Discuss the different models of inventory management.

8. Discuss the relationship between liquidity and profitability and explain how it is measured.

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