ASSAM UNIVERISYT::SILCHAR

Department of Business Administration

PG Even Semester Examination Date of Exam: August 03, 2020

WORKING CAPITAL MANAGEMENT

(Paper Code: FM-3108)

Time: 02 Hours Full Marks: 50

Read the Guidelines already given in the separate file carefully before starting
to answer the question.

Group-I: Attempt any three questions from the following: (Word limit is 400 words, each
answer) 14 x 3 = 42

1. a. “The concept of working capital as a hindrance to financial performance is a

complete change in attitude from earlier conventional wisdom.” –
Justify the statement from the perspective of traditional view of working
capital. (Marks – 4)
b. From the following information extracted from the books of a manufacturing
company, compute the operating cycle in terms of days and amount of working
capital needed for the firm. (Marks – 10)
Period covered 365 Days
Average period of credit allowed by suppliers 20 Days
(₹ in ‘000)
Average total of Debtors Outstanding 480
Raw material consumption 4,400
Total Production Cost 10,000
Total Cost of Sales 10,500
Sales for the year 16,000
Value of Average Stock maintained:
Raw material 320
Work-in-progress 350
Finished Goods 260
2. a. “Lockboxing eliminates the delays experienced when checks are directed
to a business.”
– Discuss the sources of these delays in cash movement and how those can be
eliminated using lockboxing? (Marks – 4)
b. Hindusthan Machine Tool expects to have ₹25,00,000 in cash outlays for next
year. The firm believes that it will face an opportunity interest rate of 12.5% and
will incur a cost of ₹150 each time it borrows (or withdraws). Cash outlays are
expected to be steady over the year. (Marks – 10)
i. What is the optimal borrowing or withdrawal lot size?
ii. What is the total cost for the use of cash needed for transactions
demanded?
iii. What will be the cash cycle for the firm?
iv. What will be the average cash balance for the firm?

3. a. ‘Liquidity and Profitability are conflicting with each other while following
credit policy’. How a firm can bring trade-off between the two? (Marks – 4)
b. Explain the impact of receivables, individually, and other incidental
implications, in case of the following events, making the necessary valid
assumptions: (Marks – 10)
(A) Boom
(B) Interest rate increases
(C) Production and selling costs increase due to inefficiency of the staff.
(D) Firm changes the credit terms from ‘3/10, net 30 to 4/10, net 30’
(E) Depression

4. a. “The management of inventories must meet two opposing needs”. What are
they? How a balance is brought between the opposing needs? (Marks – 4)
b. In a firm, two types of materials ‘A’ and ‘B’ are used. Per week usage is as
under: (Marks – 10)
“A” “B”
Normal Usage 500 units 300 units
Maximum Usage 750 units 400 units
 Minimum Usage 250 units 100 units
Re-order quantity A-3000 units and B- 5000 units
Re-order period A-4 to 6 weeks and B- 2 to 4 weeks
From the above information calculate:
(i) Re-order level
(ii) Minimum stock level
(iii) Maximum stock level
(iv) Average stock level
5. a. Discuss the three broad categories of risk that a company is typically exposed
to while doing business internationally. (Marks – 4)
b. Discuss in brief the different instruments of mitigating such risks available to
a company engaged in international transactions. (Marks – 10)

Group-II: Attempt any two questions from the following: (Word limit is 100 words, each
answer) 4 x 2 = 8

1. Write short note on any two of the following: (Marks – 4*2 = 8)

A. Controlled Disbursements.
B. Tandon Committee Recommendations.
C. ABC Analysis.