AKMONLINK COLLEGE

Department of Accounting and Finance

Financial Management II
GENERAL GIDLINES
GIZACHEW T (HWRE,MSC,MBA)
Summation date =Final date
It is individual assignment
Max mark = 20%
PART I: CHOOSE THE BEST ANSWER FROM THE FOLLOWING ALTERNATIVES

1. Which one of the following is not an effective inventory management technique:

A. Ensure a continuous supply of raw materials to facilitate an interrupted production
B. Maintain sufficient stocks of raw materials in periods of short supply and anticipate
price changes
C. Maintain sufficient finished goods inventory for smooth sales operations and
efficient customer service
D. Maximize the carrying costs and time and control investment in inventories and
keep it at optimum level.
2. Which one of the following is benefits of holding inventory
A. Flexibility B. Economy C. Customer Satisfaction D. All of the above
3. Which one of the following is not cost of holding inventory
A. Carrying cost
B. Ordering cost C. Selling cost

D. None of the above

4. Which one of the following is inventory carrying cost?

A. Insurance
B. Storage and handling expenses
C. Capital tied up in inventories
D. All are carrying costs
5. All are inventory management systems except
A. The ABC system
B. The economic order quantity (EOQ)
C. The just-in-time (JIT) system
D. The materials requirement planning (MRP) system
E. None of the above

6. A cycle in which they purchase inventory, sell goods on credit, and then collect
accounts receivable referred to as
 A. The cash conversion cycle,
B. Inventory conversion period
C. Receivables Collection Period
D. Payables deferral period

7. Cash Management is concerned with managing of;

A. Cash flows into and out of the firm,
B. Cash flows within the firm
C. Cash balances held by the firm at a point of time by financing deficit or investing surplus.
D. All of the above
8. Three major decision areas of cash management involves:
A. Determining appropriate cash balances.
B. Investing idle cash.
C. Managing collections and disbursements.
D. All of the above
9. The transaction motive requires a firm to hold cash to conduct its business in the ordinary
course is known as:
A. Speculative motive
B. Transaction motive
C. Precautionary motive
D. Cash motive
10. The date when the board of directors announces the dividend payment is:
A. Ex-dividend date B. Declaration date. C. Payment date D. Record date.

PART II: DISCUSS and WORK OUT QUESTION

1. List at least three arguments in favour of both the gross and net working capital
concepts?

2 Which of the two working capital concepts is more relevant for companies where
ownership is different from management?

3.Why working capital management is so important for most firms?

4 List and discuss at least three relevant factors that affect the level of working capital?

5 Why do you think public utilities have very limited need for working capital?
6 List and discuss at least three relevant factors that affect the level of working
capital?
7 Why do you think public utilities have very limited need for working capital?

8. Why is cash management important?

 9. What are the similarity and difference between Precautionary and Speculative
Motives?

10 Why do firms keep excess cash balance if it makes them to incur additional costs
due to lose of income that could be earned by investing in marketable securities?

11. Tools and techniques of cash management

12. Cash management cycle

13.Objectives of inventory management

14.EOQ

15. Transactional cost

16. Assume fixed transaction cost of birr 4000 and daily interest rate is 0.7%.what is the
optimal cash balance and the upper cash limit if the firm sets a lower cash limit of birr
3000 and variance of daily net cash flow is birr 180,000.(6 marks)
1. Given
I) Lead time = 30 days
II) Safety stock = 600

17. Assume the following for a firm with a constant disbursement rate: 8% annual
interest rate of marketable securities, Br.120.00 per transaction cost to replenish
cash balance and a total of Br. 45,000.00 cash requirement to operate for one
year. Based on the given information, determine the missing items for the
following initial cash balances.

Initial cash Average cash Opportunit Trading Total cost

balance balance y cost costs
Br 25,000.00 Br.12,500.00 Br.1,000.00 ? Br.1,216.00
6,000.00 ? 240.00 Br. 900.00 1,140.00
4,500.00 2,250.00 ? 1,200.00 ?
12,600.00 ? 504.00 ? ?
10,000.00 5,000.00 ? ? 940.00

18. On June 30, 2009, XYZ Company declared a dividend of Br. 5 per share, payable on
September 1 to the holders of record on August 1. Show the XYZ dividend payment
procedure .In terms of

I. Ex-dividend date
II. II Declaration date.
III. III. Payment date
IV. IV. Record date