P. R.

Pote (Patil) College of Engineering and Management

Department of MBA
3rd Assignments of (2019-20)
MBA SEM III Finance/3103
Working Capital Management
Last date of Submission 11th November 2019
Q1) From the following forecasts of income and expenditure prepare a cash budget for: the
three months commencing 1st June, when the bank balance was Rs. 1, 00,000:

Month Sales in Rs. Purchase in Wages in Factory Selling &

Rs. Rs. Exp. In Rs. Adm. Exp
in Rs.
April 80,000 41,000 5,600 3,900 10,000

May 76,500 40,500 5,400 4,200 14,000

June 78,500 38,500 5,400 5,100 15,000

July 90,000 37,000 4,800 5,100 13,000

August 95,000 35,000 4,700 6,000 17,000

A sales commission of 5% on sales, due two months after sales, is payable in addition to
selling expenses, plant valued at Rs. 65,000 will be purchased and paid for in August and
dividend for the last financial year of Rs. 15,000 will be paid in July. There is a two month
credit period allowed to customers and received from suppliers.

Q2) The Divya Paints Ltd is currently following a centralized collection system. Most of its
customers are located in the cities of Northern India. The remittances mailed by customers to
the central location take four days to reach. Before depositing the remittances in the bank, the
firm loses two days in processing them. The daily average collection of the firm is Rs.
1,00,000. The company is thinking of establishing a lockbox system. It is expected that such
a system will reduce mailing time by one day and processing time by one day.

(i) Find out the reduction in cash balances expected to result from the adoption of the
lock-box system.
(ii) Determine the opportunity cost of the present centralized collection system if the
interest rate is assumed to be 18%.
(iii) Should the lock-box system be established if its annual cost is Rs. 24,500?
Q3) A firm maintains a separate account for cash disbursement. Total disbursements are
Rs. 1,05,000 per month or 12,60,000 per year. Administrative and transaction cost
of transferring cash to disbursement account is 20 per transfer. Marketable
securities yield is 8% per annum. Determine the optimum cash balance according
to William J. Baumol.