Subject Code: IMT-07

Subject Name : Working

a. b. c. d. A. B.

Capital Management
INSTRUCTION

Write answers in your own words as far as possible and refrain from copying from the text books/handouts. Answers of Ist Set (Part-A), IInd Set (Part-B), IIIrd Set (Part C) and Set-IV (Case Study) must be sent together. Mail the answer sheets alongwith the copy of assignments for evaluation & return. Only hand written assignments shall be accepted. First Set of Assignments: Second Set of Assignments: 5 Questions, each question carries 1 marks. 5 Questions, each question carries 1 marks. 5 Questions, each question carries 1 marks. Confine your answers to 150 to 200 Words. Two Case Studies : 5 Marks. Each case study carries 2.5 marks.

C. Third Set of Assignments: D. Forth Set of Assignments:

ASSIGNMENTS
FIRST SET OF ASSIGNMENTS Assignment-I = 5 Marks

PART A
Q1Writeshortnotesonthefollowing: a) Playingthefloat

b) CommercialPaper Q2Explainthefactorsaffectingthesizeofworkingcapital. Q3Differentiatebetween: a) ABCAnalysisandVEDAnalysis

b) GrossWorkingCapitalandnetworkingcapital Q4Explainthepurposeofholdingcash.Explainbrieflythefactorsdeterminingthecashbalance. Q5Discussthepreconditionsfordevelopinganefficientmoneymarket. SECOND SET OF ASSIGNMENTS Assignment-II = 5 Marks

PART B
1. A small firm has total credit sales of Rs 80 lakhs and its average collection period is 80 days. The past experience indicates that bad debt losses are around 1 percent of credit sales. The firm spends about Rs

Working Capital Management

Page1of3

IMT07

2. 3. 4.

5.

120000 per annum on administering its credit sales; this cost includes salaries of one officer and two clerks who handle credit checking & collection. A factor is prepared to buy the firms receivables by charging 2 percent commission and interest at the rate of 18 percent after withholding 10 percent as reserve.Whatshouldthefirmdo? The varying ratio between fixed assets and current assets has an impact on profitability/liquidity of a firm.Discuss A firm disburses Rs 30 lakh every year. The conversion charge is Rs 50 per conversion. The current risk freeinterestrateis9%.FindouttheoptimalcashbalanceusingBaumolmodel. Amanufacturerbuyscastingequipmentfromoutsidesuppliers@30perunit.Totalannualneedsare800 units, annual return on investment is 10%, Rent and insurance per year is Re 1 per unit & cost of placing anorderisRs100perorder.Determinetheeconomicorderquantity Explainthebenefitsandcostofmaintainingreceivables. Assignment-II = 5 Marks

THIRD SET OF ASSIGNMENTS

PART C
1. 2. 3. 4. EnumeratethefunctionsoftheMoneyMarket.Whichinstitutionsactasfacilitatortothemoneymarket? Whatarethedifferentformsofbankcredit?Explaindifferentmodesinwhichcollateralisplaced. Explain the norms suggested by the Tandon Committee for providing bank credit. How did the recommendationofChoreCommitteebringmodificationtothenexistingnorms? AfirmsellsgoodsworthRs100,000everymonth.20%ofthesaleismadeoncash,40%onnet30andthe remaining 40% on net 60. If the sale begins in January, find out the cash balance with the firm in the sale accountduringJanuary,FebruaryandMarch. Explaintheprocedureadoptedforselectingacustomertowhomcreditfacilitiesareprovided. Assignment-IV = 2.5 Each Case Study

5.

FOURTH SET OF ASSIGNMENTS

CASE STUDY - I
You are required by A P Paper Mills Ltd. To estimate working capital required for the level of activity of 6,24,000 units of production. Add 5% for safety. You may assume that production is carried on evenly throughout the year and wages and overhead expenses accrued similarly and a time period of four weeks is equivalent to a month. It providesthefollowinginformation: Description RawMaterial DirectLabour Overhead TotalCost Profit SellingPrice Amount(perunit) 90 40 80 210 60 270

Working Capital Management

Page2of3

IMT07

AdditionalInformation: Rawmaterialinstock:onemonth;Materialinprocess:halfmonth;Finishedgoodsinstock:fourweeks;Credit allowedbysuppliers:onemonth;Creditallowedtocustomers:eightweeks;laginpaymentofwages:oneand ahalfweek;Overheads:oneweek;20%ofsalesarecashsalesandcashatbankisexpectedtobeRs60,000.

CASE STUDY-II
TheUdarLtd.sellsgoodsoncredit.ItscurrentannualcreditsalesamountstoRs900lakh.Thevariablecostratiois 80%.Thecredittermsare2/10,net30.Onthecurrentlevelofsales,thebaddebtsare0.75%.Thepastexperience hasbeenthat50%ofthecustomersavailofthecashdiscount,theremainingcustomerspayonanaverage50days after the date of the sale. The book debts of the firm are presently being financed in the ratio of 2:1 by a mix of bank borrowings and owned funds which cost 25% and 28% per annum respectively. As an alternative to the in housemanagementofreceivables,UdarLtd.iscontemplatinguseoffulladvancenonrecoursefactoringdealwith theIndbankFactorsLtd.Themainelementsofsuchadealstructuredbythefactorare: Factorreserve15% Guaranteedpaymentdate24daysafterthepurchase Discountcharge22% Commissionofotherservices4%ofthereceivables.

Analysetheproposal

Working Capital Management

Page3of3

IMT07