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Financial Management V4
Assignment A
1 . Explain why debt is usually considered the cheapest source of financing
available?
2 . Differenciate between financial and business risks?
3 . Discuss the different approaches of financing of working capital require
ments?
4 . Describe any two methods of incorporating risk in capital budgeting deci
sions?
5 . Explain the merits of using market value weights in computing weighted a
verage cost of capital?
6 . Explain any two methods of cash management?
7 . State with illustration the practical application of time value of money
?
8 . Critically explain the factors affecting dividend decisions?
Assignment B

Case Detail :
Working capital Do you have enough?
Lending institutions are scrutinizing an operation s working capital status as par
t of the lending decision. Now more than ever, it s time to do a little scrutinizi
ng yourself. When I hit the road to speak, one of the most important slides I r
egularly use highlights how lending criteria has changed since the financial cri
sis. To illustrate that point, the slide includes a quote from Nick Parsons, hea
d of research with the National Australia Bank: "So capitalism has changed the own
er or the custodian of capital [i.e. lending institutions] is much more careful
about where they use that capital.
To that end, most readers have likely experienced increased scrutiny from their
lenders in this post-crisis world. And one of the key criteria that lenders use
to make decisions revolves around availability of working capital within any ope
ration; working capital being a function of current assets less current liabilit
ies. It s a measure of an operation s buffer to meet its short-term obligations, hen
ce the importance to lenders.
Perhaps equally important, it s a key indicator of cash reserve availability to me
et unexpected emergencies. Thus, it is an important component of risk management
to ensure business continuity within the operation without the need to borrow a
dditional funds. As an example, albeit simplified, a pickup is typically a criti
cal operational asset for most cow-calf operations. What if it catches on fire a
nd suddenly needs to be replaced, else the cows don t get fed? After insurance pro
vides some portion towards replacement, does the operation have sufficient worki
ng capital to meet the remainder of the obligation? This type of assessment has
become more important to lenders since the financial crisis.
This week s graph highlights USDA s updated aggregate working capital estimates in a
griculture. Clearly, as last week s illustration depicts, declining revenue has ta
ken a big hit out of working capital reserves for agriculture. Working capital h
as declined nearly 50% - the loss exceeds $82 billion in just three years. That s
a concerning trend and if it continues, will clearly have implications in the co
ming years.
What are you doing to maintain strong cash and working capital reserves amidst d
eclining revenue? What new expectations do you your lenders have during the past
several years and going into 2017? How will you adjust going forward? Leave you
r thoughts in the comments section below.

Question
1. Provide the brief summary of the case in your own words?

2. What new expectations do your lenders have during the past several ye
ars and going into future?

3. What should be done to maintain strong cash and working capital reser
ves amidst declining revenue?

Assignment C

Question No. 1
Dividend has no relationship with the value of the firm as per Walter Model.

Options
Yes
No
Can't say
Sometimes

Question No. 2
Wealth management and profit maximisation are the concepts.

Options
Yes
Sometimes
No
Can't say
Question No. 3
Traditionally the role of finance manager was restricted to . Of funds.

Options
Use
Procurement
Management
Administration

Question No. 4
The sales of a business or other form of revenue from operations of the business
is called as .

Options
Profit
Margin
Contribution
Turnover

Question No. 5
Implicit cost is the cost of using the funds.

Options
TRUE
FALSE
None
Sometimes False

Question No. 6
The process of calculating present value of projected cash flows.

Options
Discounting
Brokerage
Benefit
Budgeting

Question No. 7
A part of the organisation where the manager has responsibility for generating r
evenues, controlling costs and producing a satisfactory return on capital invest
ed in the division.

Options
Brekarage
Brokerage
Division
Recasting

Question No. 8
Business practices designed by companies to make production and delivery systems
more competitive in world markets by eliminating or minimizing waste, errors, a
nd costs.

Options
Reengineering
Restructuring
Revaluation
Recasting

Question No. 9
Cash in hand and cash at bank are examples of . Assets.

Options
Current
Fixed
Working
Permanent

Question No. 10
Baumol model and the Miller-Orr model belong to . Management.

Options
Cash
Credit
Inventory
Purchase

Question No. 11
Current assets /Current liabilities describes . Ratio.

Options
Fixed Asset
Quick
Liquidity
Asset Turnover

Question No. 12
Inventory and receivables are both current assets.

Options
FALSE
Can't Say
Sometimes
TRUE

Question No. 13
Credit analysis, or the assessment of creditworthiness, is undertaken by analysi
ng and evaluating information relating to a customer s history?

Options
Non-Financial
Non-Monetary
Financial
Monetary

Question No. 14
The objective of liquidity ensures that companies are able to meet their liabili
ties as they fall due, and thus remain in business.

Options
Rare
TRUE
Sometimes
FALSE

Question No. 15
Funds held in the form of cash do not earn a return.
Options
TRUE
Sometimes
FALSE
Rare

Question No. 16
Holding costs can be . by reducing the level of inventory held by a company.
Options
minimised
control
increased
reduced

Question No. 17
Which technique brings inventory and cash requirment drastically down?

Options
LIFO
Baumal
ABC
JIT

Question No. 18
Which model belongs to cash management?

Options
LIFO
Miller Orr
HIFO
ABC

Question No. 19
JIT stands for just in . .

Options
totality
technical
tenure
time

Question No. 20
The factors to be considered in formulating a trade receivables policy relate to
credit analysis, credit control and receivables collection.

Options
TRUE
Sometimes
Rare
FALSE

Question No. 21
Companies with the same business operations may have levels of investment in workin
g capital as a result of adopting different working capital policies.

Options
lower
higher
different
Same

Question No. 22
Receibles management is all about?

Options
Cash Management
Loan Management
Credit Management
All

Question No. 23
The main reason that companies fail, though, is because they run out of .

Options
Customers
Inventory
Cash
Stock

Question No. 24
Is it right to say that good cash management is an essential part of good workin
g capital management.

Options
Sometimes
never
Always
Can't say

Question No. 25
Optimum cash balance must reflect the expected need for cash in the next budget
period.

Options
never
Always
Can't say
Sometimes

Question No. 26
The cash operating cycle is the average ... of time between paying trade payables an
d receiving cash from trade receivables.

Options
Lag
period
length
gap

Question No. 27
The length of the cash .. depends on working capital policy in relation to the level
investment in working capital, and on the nature of the business operations of
a company.

Options
requirement
Operating Cycle
disbursal
Management

Question No. 28
Liquid funds, for example cash, earn no return and so will not increase profitab
ility.

Options
TRUE
FALSE
rare
Sometimes

Question No. 29
.. are your business scores that come from your Income Statement and Balance Shee
e Cash Flow Statement.

Options
Marks
Financial Scores
Points
Ratios

Question No. 30
Working capital investment policy is concerned with the level of investment in asse
ts, with one company being compared with another.

Options
Permanent
Temporary
Current
Fixed

Question No. 31
.. can also be used to cover some of the risks associated with giving credit to fore
gn customers.

Options
Locking
Awards
Insurance
Rewards

Question No. 32
Aggressive working capital finance means using more . term finance

Options
Credit
Short
Medium
Long

Question No. 33
Short-term finance is more flexible than long-term finance.

Options
TRUE
FALSE
Never
Sometimes

Question No. 34
Short-term finance tends to be more .. than long-term finance.

Options
Softer
Rigid
Flexible
harder

Question No. 35
Sales made but not collected is known as .?

Options
A/Cs Payables
A/Cs Receivables
Both
None
Question No. 36
. Interest rate depends upon an index and increases or decreases.

Options
Stationary
Variable
Stable
Fixed

Question No. 37
Short-term finance is more risky than long-term finance.

Options
FALSE
Never
Sometimes
TRUE

Question No. 38
Rate risk refers to the fact that when short-term finance is renewed, the rates
may vary when compared to the .. rate.

Options
Current
Previous
Accounting
Industry

Question No. 39
The . principle suggests that long-term finance should be used for long-term investm
ent.

Options
Matching
Traditional
Dual Aspect
Monetary

Question No. 40
Money paid (cost of credit) for the use of money.

Options
Interest
Dividend
Usage Money
Principal
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