MBA SOLVED ASSIGNMENTS: MS - 41 Working Capital Management

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ASSIGNMENT

Course Code :	MS - 41
Course Title :	Working Capital Management
Assignment Code :	MS-41/TMA/SEM - I /2020
Coverage :	All Blocks

Note : Attempt all questions and submit this assignment to the coordinator of your study center on or before 30th April, 2020.

Q1.Explain the meaning of Working Capital. How does inflation affect the size of working capital, availability of working capital, and various components of working capital.

Ans:

The meaning of Working Capital

Working capital, also known as net working capital (NWC), is the difference between a company’s current assets, such as cash, accounts receivable (customers unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable. Net operating working capital is a measure of a company's liquidity and refers to the difference between operating current assets and operating current liabilities. In many cases these calculations are the same and are derived from company cash plus accounts

Q2.An Enterprises’ current turnover is Rs. 10 lakh per annum. The enterprise currently allows a credit period of 40 days to its customers from the date of sale. The management of this enterprise wishes to adopt a more liberal credit policy, and it is exploring the following options:

Credit Proposed increase in Expected increase Anticipated default rate

policy collection period (days) in sales (Rs) or rate of bad debt (%)

I 10 40,000 2%

II 20 50,000 2.5%

III 30 70,000 3%

IV 40 90,000 4%

Additional information :-

-Selling price/unit is Rs 5.00

-Average cost/unit is Rs 3.00

-Variable costs/unit is Rs 2.00

-Current default rate is 1.5%

-Required rate of return is 15%

-A year consists of 360 days

You are required to suggest which of the above credit policies should be followed?

Soln:

Q3.Taking a suitable example explain how maximum permissible bank finance is assessed under the three methods of lending suggested by the Tandon Committee.

Ans:

In order to provide greater freedom in assessing the working capital requirements of borrowers, effective from April 15, 1997, all instructions relating to MPBF were withdrawn. Banks were instructed to evolve their own method such as turnover method, the cash budget system, the MPBF system with necessary modifications or any other system of assessing working capital requirements.

The loan policy in respect of each broad category of

4.“Capital Investment Module and Working Capital Module use simulation techniques to represent the interactions among the capital investment and working capital variables” Discuss.