Deemed University 2011 M.B.A University: Lingayas University Term: VI Title of the : Working Capital Management - Question Paper

Roll No. ..

 

Lingayas University

MBA 2^nd Year (Term VI)

Examination May 2011

Working Capital Management (BA - 240)

 

 

[Time: 3 Hours] [Max. Marks: 100]

 

Before answering the question, candidate should ensure that they have been supplied the correct and complete question paper. No complaint in this regard, will be entertained after examination.

 

Note: Attempt five questions in all. All questions carry equal marks. Select two questions from Section A and two questions from Section B. Question no. 8 (Section C) is compulsory.

 

Section A

 

Q-1. The following information about ABC Company is given:

The estimated sales for the period January 2001 through June 2001 are as follows:

Rs 100,000 a month from January through March and Rs 120,000 a month from April through June. The sales for November and December of the previous year have been Rs 10,000 each. Cash and credit sales are expected to be 20 percent and 80 percent respectively. The receivables from credit sales are expected to be collected as follows: 30 percent after two month and the balance 70 percent after three months. Other anticipated receipts are: Rs 2500 from the sale of a machine in March and Rs 5000 interest on securities in June.

 

Relevant information cash payments

Beta Company plans to purchase materials worth Rs 40,000 in January and February and materials worth Rs 48,000 each month from March through June. Payments will be made a month after the purchase. A payment of Rs 40,000 will be made in January for purchases in the previous December. Miscellaneous cash purchases of Rs 1500 per month are planned from January through June. Wage payments will be Rs 7500 per month, January through June. Payments for manufacturing expenses will be Rs 20,000 per month and for general administrative expenses will be Rs 10,000 per month, January through June. Dividend payment of Rs 18,000 and a tax payment of Rs 20,000 are planned for June. A machine will be brought in cash for Rs 50,000 in March.

On the basis of the given information prepare cash budget. [20]

 

Q-2. How conservative and aggressive approach to financing a firm will affect the cost of financing? Explain with illustration. [20]

 

Q-3. Write short notes on following: (Attempt any two)

(i) Discriminate and sequential analysis

(ii) Investment in marketable securities

(iii) Heuristic approach [210=20]

 

Section B

Q-4. Manish Corporation currently provides 45 days of credit to customers. Its present sales are 80 million. The firms cost of capital is 13% and the ratio of variable costs to sales is 0.75. Manish is considering extending its credit period to 60 days. Such an extension is likely to push sales up by 20 million. The bad debt proportion on additional sales would be 10%. The tax rate for Manish is 35%. What will be the affect of lengthening the credit period on the residual income of Manish? [20]

 

Q-5. What are the effects of liberal versus stiff credit standards? And also explain the important dimensions of a firms credit period. [20]

 

Q-6. Explain the meaning and sources of working capital finance. Does the choice of sources play any impact on the cost of finance? Elucidate the statement. [20]

 

Q-7. Explain the common features of monetary system for working capital management. [20]

 

Section C

 

Q-8. CASE STUDY

The finance department of Prashanth Textile Corporation gathered the following information:

The carrying cost per unit of inventory are Rs 10.

The fixed cost per order are Rs 20.

The number of units required is 30,000 per year.

The variable costs per unit ordered are Rs 2.

The purchase cost price per unit is Rs 30.

 

Question

 

Determine the economic order quantity, total number of orders in a year, the time gap between two orders. [20]