Solapur University Question Paper
M.B.A. II (Semester – III) Examination, 2014
FINANCIAL MANAGEMENT (Paper – III) (Group – B) (Old)
Paper – XXI : Project Planning and Working Capital Management
Day and Date : Monday, 9-6-2014 Total Marks : 70
Time : 11.00 a.m. to 12.00 p.m.
Instructions : 1) Q. 1 and Q. 7 are compulsory.
2) Attempt any two questions from Q. No. 2, 3 and 4.
3) Attempt any one question from Q. 5 and 6.
1. A) State True or False : 6
1) Risk refers to the variability in the actual return vis-à-vis the estimated
return in terms of cash flows.
2) Higher net working capital leads to higher liquidity and higher profitability.
3) ABC analysis helps to ascertain the minimum level of stock of raw material.
4) Delinquency cost refers to bad debts losses to the firm.
5) Issue of commercial paper is not governed by Reserve Bank of India.
6) Risk is a characteristic inherent in all business.
B) Write the long form of the following abbreviation : 4
1) EOQ 2) IRR 3) IDFC 4) SICOM
C) Match the following correctly : 4
AB
1) Carrying cost a) Cash management
2) Delinquency cost b) Inventory management
3) Stock out stock c) Safety cost
4) Transaction motive d) Receivables management
Seat
No.
SLR-XY – 40 -2-
2. Write short notes on (any two) : 14
1) IDFC
2) SICOM
3) Market and demand analysis.
3. Attempt any two of the following : 14
1) Cash management basic strategies.
2) Various level of inventory control.
3) Aman Ltd. is now extending 1 month’s credit to its selected customers. It
sells its product at Rs. 100 each, and has an annual sales volume of 50,000
units. At current level of production, which matches with sales, the product
has a total cost of Rs. 90 per unit and a variable cost of Rs. 80 per unit. The
company is considering a plan to grant more liberal terms by extending the
duration of credit from 1 month to 2 months and expects the sales to the
customers group to go by 25 per cent. In the background of a normal
expectation of a 20 per cent return on investment, will this relaxation in
credit standard justify itself ?
4. Solve any two from the following : 14
1) A proforma cost sheet of a company provides the following data :
Particulars Rs.
Cost (per unit)
Raw materials 26.0
Direct Labour 09.75
Overheads 19.5
Total cost (per unit) 55.25
Profit 09.75
Selling price 65.00
The following is the additional information available :
Average raw material in stock : one month; average materials in process : half
a month. Credit allowed by suppliers : one month; credit allowed to debtors :
two months. Time lag in payment of Wages : One month. Overheads : one
month. One fourth of sales are on cash basis. Cash balance is expected to be
Rs 60,000/- Finished goods : one month.
-3- SLR-XY – 40
You are required to prepare a statement showing the working capital needed to
finance a level of activity of 60,000 units of output. Add 10 per cent to your
computed figure to allow for contingencies. You may assume that production is
carried on evenly throughout the year and wages and overheads accrue similarly.
2) A project will cost Rs. 1,10,000/-. It has one year life. It is expected to
generate cash flows of Rs. 2,40,000, Rs. 1,80,000, Rs. 60,000 and Rs.
40,000 with associated probabilities, respectively of 0.20, 0.30, 0.25 and
0.25. The discount rate is 8 percent. Should the project be accepted ?
3) “A credit policy should neither be too much liberal nor too much stringent ”.
Elucidate.
5. Pavan Kumar Ltd., a newly started company wishes to prepare cash budget
from January. Prepare a cash budget for the first six months from the following
estimated revenue and expenses.
Month Total Sales Purchases Wages Office
expense
Selling and
Distribution
January 20,000 20,000 4,000 3,200 800
February 22,000 14,000 4,400 3,300 900
March 28,000 14,000 4,600 3,400 900
April 36,000 22,000 4,600 3,500 1,000
May 30,000 20,000 4,000 3,200 900
June 40,000 25,000 5,000 3,600 1,200
Additional information :
1) Cash balance on 1st January was Rs. 10,000/-.
2) A new machine is to be installed costing Rs. 20,000/- on credit basis. It is to
be repaid in two equal installments in March and April.
3) Sales commission @ 5% on total sales is to be paid within a month following
actual sales.
4) Rs. 10,000/- being the amount of 2nd call may be received in March.
5) Share premium amounting to Rs. 2000/- is also obtainable with the 3rd call in
March.
6) Period of credit allowed by suppliers : 2 months
7) Period of credit allowed to debtors : 1 month
8) Delay in payment of office expense, Selling and Distribution : 1 month
9) Delay in payment of wages : ½ month
Assume cash sale to be 50% of total sales. 14
6. What is capital budgeting ? Describe the process in capital budgeting. Explain
any two discounting cash flow technique for evaluation of capital budgeting
decision. 14
7. Define working capital. What are the determinants of working capital ? Explain
the concept of operating cycle of working capital. 1
M.B.A. II (Semester – III) Examination, 2014
FINANCIAL MANAGEMENT (Paper – III) (Group – B) (Old)
Paper – XXI : Project Planning and Working Capital Management
Day and Date : Monday, 9-6-2014 Total Marks : 70
Time : 11.00 a.m. to 12.00 p.m.
Instructions : 1) Q. 1 and Q. 7 are compulsory.
2) Attempt any two questions from Q. No. 2, 3 and 4.
3) Attempt any one question from Q. 5 and 6.
1. A) State True or False : 6
1) Risk refers to the variability in the actual return vis-à-vis the estimated
return in terms of cash flows.
2) Higher net working capital leads to higher liquidity and higher profitability.
3) ABC analysis helps to ascertain the minimum level of stock of raw material.
4) Delinquency cost refers to bad debts losses to the firm.
5) Issue of commercial paper is not governed by Reserve Bank of India.
6) Risk is a characteristic inherent in all business.
B) Write the long form of the following abbreviation : 4
1) EOQ 2) IRR 3) IDFC 4) SICOM
C) Match the following correctly : 4
AB
1) Carrying cost a) Cash management
2) Delinquency cost b) Inventory management
3) Stock out stock c) Safety cost
4) Transaction motive d) Receivables management
Seat
No.
SLR-XY – 40 -2-
2. Write short notes on (any two) : 14
1) IDFC
2) SICOM
3) Market and demand analysis.
3. Attempt any two of the following : 14
1) Cash management basic strategies.
2) Various level of inventory control.
3) Aman Ltd. is now extending 1 month’s credit to its selected customers. It
sells its product at Rs. 100 each, and has an annual sales volume of 50,000
units. At current level of production, which matches with sales, the product
has a total cost of Rs. 90 per unit and a variable cost of Rs. 80 per unit. The
company is considering a plan to grant more liberal terms by extending the
duration of credit from 1 month to 2 months and expects the sales to the
customers group to go by 25 per cent. In the background of a normal
expectation of a 20 per cent return on investment, will this relaxation in
credit standard justify itself ?
4. Solve any two from the following : 14
1) A proforma cost sheet of a company provides the following data :
Particulars Rs.
Cost (per unit)
Raw materials 26.0
Direct Labour 09.75
Overheads 19.5
Total cost (per unit) 55.25
Profit 09.75
Selling price 65.00
The following is the additional information available :
Average raw material in stock : one month; average materials in process : half
a month. Credit allowed by suppliers : one month; credit allowed to debtors :
two months. Time lag in payment of Wages : One month. Overheads : one
month. One fourth of sales are on cash basis. Cash balance is expected to be
Rs 60,000/- Finished goods : one month.
-3- SLR-XY – 40
You are required to prepare a statement showing the working capital needed to
finance a level of activity of 60,000 units of output. Add 10 per cent to your
computed figure to allow for contingencies. You may assume that production is
carried on evenly throughout the year and wages and overheads accrue similarly.
2) A project will cost Rs. 1,10,000/-. It has one year life. It is expected to
generate cash flows of Rs. 2,40,000, Rs. 1,80,000, Rs. 60,000 and Rs.
40,000 with associated probabilities, respectively of 0.20, 0.30, 0.25 and
0.25. The discount rate is 8 percent. Should the project be accepted ?
3) “A credit policy should neither be too much liberal nor too much stringent ”.
Elucidate.
5. Pavan Kumar Ltd., a newly started company wishes to prepare cash budget
from January. Prepare a cash budget for the first six months from the following
estimated revenue and expenses.
Month Total Sales Purchases Wages Office
expense
Selling and
Distribution
January 20,000 20,000 4,000 3,200 800
February 22,000 14,000 4,400 3,300 900
March 28,000 14,000 4,600 3,400 900
April 36,000 22,000 4,600 3,500 1,000
May 30,000 20,000 4,000 3,200 900
June 40,000 25,000 5,000 3,600 1,200
Additional information :
1) Cash balance on 1st January was Rs. 10,000/-.
2) A new machine is to be installed costing Rs. 20,000/- on credit basis. It is to
be repaid in two equal installments in March and April.
3) Sales commission @ 5% on total sales is to be paid within a month following
actual sales.
4) Rs. 10,000/- being the amount of 2nd call may be received in March.
5) Share premium amounting to Rs. 2000/- is also obtainable with the 3rd call in
March.
6) Period of credit allowed by suppliers : 2 months
7) Period of credit allowed to debtors : 1 month
8) Delay in payment of office expense, Selling and Distribution : 1 month
9) Delay in payment of wages : ½ month
Assume cash sale to be 50% of total sales. 14
6. What is capital budgeting ? Describe the process in capital budgeting. Explain
any two discounting cash flow technique for evaluation of capital budgeting
decision. 14
7. Define working capital. What are the determinants of working capital ? Explain
the concept of operating cycle of working capital. 1
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