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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 :

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 :

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)

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.

MS-41   Dec-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 shorl terrn ?

2. Explain the Bierman-McAdams model that helps the financial managers in funds management of a firm. Also discuss the models which guide him 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 ?

b) Describe the various factors, bath internal and external, that afiect thc flow of cash

4- Describe the system of compulsory loan component in bank credit, as enforced by the Reserve Bank of India. Discuss the salient features of a svndicated credit.

5. What are lhe methods suggested to commercial banks RBI for assessing the working capltal requiremenls of borrowers ?

6- Explain the main methods of granting credit for working capital purposes prevalent in India.

7. Liquidity of an enterprise can be studied in two ways, namely technical liquidity and operational liquidity." Discuss these two methods of liquidity measurement

in detail and also point out the differences between the two.

8. What are lhe factors that determine the liquidity position of an undertaking ? Explain the effects of liquidity on a business enterprise.

9. Wrile short notes on any four of the followins ,

{a} Statutory liquidity ratio

(b) Commitment charge

{c) Return on Assets

{d) Factoring

(e) Collateral

(f) Bill discounting

MS-41   Dec-2008

MS-41 : Working capital management

1. "Cash Budgeting is considered a suitable device for planning working capital." Explain this statement and discuss the procedure of preparing cash budget.

2. Explain the meaning and significance of Bank Rate. Discuss how the central bank of the country controls credit by bringing about variations in the reserve requirements.

3. How are the customers eligible for credit terms defined ? Which key factors are included in CRISIL's rating methodology for deciding the creditworthiness of a borrowing company ?

4. "Corporates can raise short term funds by issuing commercial papers." Discuss the eligibility requirements, the terms and conditions on which they are issued and the procedure adopted for issuing commercial papers by the companies.

5. Explain the significance of payables as a source of finance. What are the different factors influencing the availability of trade credit ?

6. Discuss the following :

(a) Factors that contributed to the rise of the Euro dollar market.

b) Procedure for discounting of Bills of Exchange.

c) Salient features of syndicated credit.

d) Five different costs to the firm that holds inventory.

7. Distinguish between the following :

(a) Legal mortgages and Equitable mortgages

(b) With recourse and Without recourse factoring

(c) Common stock and Preferred stock

(d) Operating profit ratio and Net profit ratio

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

(a) Economic Order Quantity

(b) F-S-N Analysis

(c) Forward Exchange contracts

(d) Public Deposits

(e) Leading and Lagging

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 :

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

MS-41   Dec-2010

MS-41 : Working capital management

Solved papers of MS-41 From mehta solutions

MS-41   Dec-2011

MS-41 : Working capital management

1. The cost sheet ABC Ltd. provides the following data.

                                                                           Cost per unit

Raw material                                                     Rs. 50

Direct Labor                                                              20

Overheads

(including depreciation of Rs. 10)                            40

Total cost                                                                110

Profits                                                                      20

Selling price                                                            130

Average raw material in stock is for one month. Average material in work-in-progress is

for half month. Credit allowed by suppliers; one month; credit allowed to debtors : one month Average time lag in payment of wages : 10 days ; average time lag in payment of overheads 30 days.

25% of the sales are on cash basis. Cash balance expected to be Rs. 1,00,000. Finished goods lie in the warehouse for one month.

You are required to prepare a statement of the working capital needed to finance a level of the activity of 54,000 units of output. Production is carried on evenly throughout the year and wages and overheads accrue similarly. State your assumptions, if any, clearly.

2. Explain with examples the ratios which can be used for assessing :

(a) Efficiency of working capital

(b) Structure of working capital

(c) Liquidity of working capital elements

3. (a) With help of illustrations explain risk return trade off in working capital management.

(b) Explain the various approaches a company may follow to arrive at appropriate level of investment in current assets.

4. Management of inventory must meet two-opposing objectives. Discuss them. How is balance brought between the two objectives, Illustrate with examples.

5. Explain the following sources of working capital finance :

(a) Inter-corporate loans

(b) Company deposits

6. Explain the following cash management models :

(a) Baumol model

(b) Miller and Orr model.

7. (a) What are credit standards that are used in credit policy decision ?

(b) A company has an average collection period of 60 days with sale of 2 lakh units @ Rs, 30 with variable cost of Rs. 20 and average cost per unit Rs. 25. The company is not offering any cash discount and all sales are on credit. It is considering a proposal given by its consultant to allow a 2 percent discount for payments within 10 days. It will increase sales by 2500 units and average collection period will be reduced by 15 days.

Incidently working capital needs will increase by Rs. 1 lakh. If the company makes half of the sales at cash discount and desires a return of 20 percent on investment, should the proposal of consultant be accepted ?

8. Explain the features of different forms of bank credit prevailing in India. Distinguish between pledge and hypothecation.

MS-28   June-2007

MS-28 : LABOUR LAWS

1.. The Fundamental Rights and Directive Principles of State Policy are the backbone of industrial jurisprudence in India. Elucidate.

2. Attempt any two of' the following :

(a) What arethe provisions regarding hours of work and annual leave with wages under the Factories Act, 1948 ?

(b) What are the provisions regarding health and welfare under the Plantations Labour Act, 1951 ?

(c) What are the salient features of the Child Labour (Prohibition and Regulation) Act , 1986 ?

3. What is a "trade union" under the Trade Unions Act, 1926 ? Discuss in brief the provisions for General Fund (Section 15) and Political Fund (Section 16) under the Act.

4. What is the procedure for obtaining registration by the employer and licence by the contractor under the Contract Labour (Regulation and Abolition) Act 1970 What are the obligations of the principal employer under the Act ?

5. a) Who is an "employee" under the Employees' State Insurance Act, 1948 ?

   b) Which are the establishments covered by the Act ?

   c) What are the benefits payable under the Act ?

6. Attempt any two of the following :

(a) What are the functions of the authorities under the Industrial Disputes Act , 1947 ?

(b) What are the provisions regarding strikes and lockouts under the Industrial Disputes Act ?

c) What is the procedure for fixing and revising minimum wages under the Minimum Wages Act, 1948 ?

7 write short notes on any three of the,following :

(a) Procedure for certification of standing orders under the Industrial Employment (Standing Orders) Act, 1946.

(b) Objectives of labour laws

(c) Welfare measures under the Factories Act, 1948

(d) Equal Remuneration Act, 1976

(e) Notice of change (section 9-A of the I.D. Act)

Read the case below and answer the questions given at the end of the case.

Lakshmi Manufacturing Company is a registe red factory employing 600 people. It produces spare parts for cars and scooters. Its security staff at the gate are very

rigid in checking people/vehicles going out of the works to prevent any theft of the company's material. On June 20, 1995, Prakash, material chaser, Services Department, went to the Stores Department to draw 10 new GEC electric switches

(15 amps each) for sorne urgent breakdown job. Prakash drew the material at about 11.00 a.m. and kept the same in his hand bag and put it on the cycle handle. Ther eafter, he came to the Co-operative Credit Society office to enquire about his loan application. He suddenly remembered at 11.30 a.m. his urgent work at the post office (which is situated just outside the works gate), so that he could write and post an urgent letter and therea fter go to his department which is situated at a distance of about one km from the Stores Department. The distance between the Stores Department and the Works gate is about 50 metres

Prakash works in general shift, i.e. from 7.00 a.m. to 11.30 a.m. and from 12.30 p.m. to 4.00 p.m. The lunch break is from 11.30 a.m. to 12.30 p.m. and during this period, workers are allowed to go out of the works. Prakash, like many others, arranged with a person to get his tiffin-carrier from home to his department every day at 11.45 a.m., or payment of a nominal amount every month. On June 20 also, his tiffin-carrier had come with his lunch as usual. At 11.35 a.m., there was. a telephone call to Mahesh Kumar, Manager Services Department from the Security Inspector Ramanand that one Prakash T.No. 321 has been caught red-handed at the works gate while trying to go out of the works with 10 new GEC electric switches belonging to the company. The two security staff who detected the attempted theft were Ramadhin and Trilochan. The materials were kept in a bag hanging from the cycle handle of Prakash.

After the incident, a preliminary enquiry was held, when Prakash confessed in writing that by mistake he was carrying the switches as he intended to come back to his department after his urgent work at the post office. As per procedure for drawing materials in the Services.

   Department, on the basis of a written instruction in the Log Book from the supervisor, material chaser is supposed to prepare the material requisition after entering the details himself in the Materials Requisition Register. After getting the Requisition signed by the supervisor and the departmental head, he is supposed to go to the Stores Department to draw the material. If the materials are heavy, he has to arrange for a transport. For small items like switch, fuse etc. Prakash himself carried the same to the department. Thereafter, he is supposed. To hand over the material to the supervisor and obtain his signature in the Materials Requisition Register. On checking the entries in the Log Book as well as in the Materials Requisition Register after the incident, it was found that Prakash had correctly entered ten pieces GEC electric switches (15 amps each). As per standing order No. 17 (iii) of the Company's certified Standing orders, "Theft, fraud or dishonesty in connection with company's business or property" is a misconduct warranting dismissal as per Standing Order No. 18. The rules also provide that the manager can issue a charge-sheet and also punish with dismissal any employee of his department who is alleged to have committed an act of misconduct.

Questions :

(a) Advise the manager, Services Department on the steps required to be taken in this case.

(b) Assuming that a domestic enquiry is to be held, suggest various steps of enquiry, in detail.

(c) Suggest what positive measures are to be taken by the company for maintaining and promoting sound industrial discipline.