Financial Management 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 requirements?

4 .Describe any two methods of incorporating risk in capital budgeting decisions?

5 .Explain the merits of using market value weights in computing weighted average 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 capitalDo you have enough?

Lending institutions are scrutinizing an operations working capital status as part of the lending decision.
Now more than ever, its time to do a little scrutinizing yourself. When I hit the road to speak, one of the
most important slides I regularly use highlights how lending criteria has changed since the financial crisis.
To illustrate that point, the slide includes a quote from Nick Parsons, head of research with the National
Australia Bank: "So capitalism has changedthe owner 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 operation; working capital being a function of current assets less current liabilities. Its a
measure of an operations buffer to meet its short-term obligations, hence the importance to lenders.
Perhaps equally important, its a key indicator of cash reserve availability to meet unexpected emergencies.
Thus, it is an important component of risk management to ensure business continuity within the operation
without the need to borrow additional funds. As an example, albeit simplified, a pickup is typically a critical
operational asset for most cow-calf operations. What if it catches on fire and suddenly needs to be replaced,
else the cows dont get fed? After insurance provides some portion towards replacement, does the operation
have sufficient working capital to meet the remainder of the obligation? This type of assessment has become
more important to lenders since the financial crisis.
This weeks graph highlights USDAs updated aggregate working capital estimates in agriculture. Clearly, as
last weeks illustration depicts, declining revenue has taken a big hit out of working capital reserves for
agriculture. Working capital has declined nearly 50% - the loss exceeds $82 billion in just three years. Thats
a concerning trend and if it continues, will clearly have implications in the coming years.
What are you doing to maintain strong cash and working capital reserves amidst declining 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 your thoughts in the comments section below.

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

2. What new expectations do your lenders have during the past several years and going into future?
3. What should be done to maintain strong cash and working capital reserves amidst declining
revenue?
Q1. Dividend has no relationship with the value of the firm as per Walter Model.

Options

1. Yes
2. No
3. Can't say
4. Sometimes

Q2. Wealth management and profit maximisation are the concepts.

Options

1. Yes
2. Sometimes
3. No
4. Can't say

Q3. Traditionally the role of finance manager was restricted to . Of funds.

Options

1. Use
2. Procurement
3. Management
4. Administration

Q4. The sales of a business or other form of revenue from operations of the business is called as .

Options

1. Profit
2. Margin
3. Contribution
4. Turnover

Q5. Implicit cost is the cost of using the funds.

Options

1. TRUE
2. FALSE
3. None
4. Sometimes False

Q6. The process of calculating present value of projected cash flows.

Options

1. Discounting
2. Brokerage
3. Benefit
4. Budgeting

Q7. A part of the organisation where the manager has responsibility for generating revenues, controlling
costs and producing a satisfactory return on capital invested in the division.

Options

1. Brekarage
2. Brokerage
3. Division
4. Recasting

Q8. Business practices designed by companies to make production and delivery systems more
competitive in world markets by eliminating or minimizing waste, errors, and costs.

Options

1. Reengineering
2. Restructuring
3. Revaluation
4. Recasting

Q9. Cash in hand and cash at bank are examples of . Assets.

Options

1. Current
2. Fixed
3. Working
4. Permanent

Q10. Baumol model and the Miller-Orr model belong to . Management.

Options
1. Cash
2. Credit
3. Inventory
4. Purchase

Q11. Current assets /Current liabilities describes . Ratio.

Options

1. Fixed Asset
2. Quick
3. Liquidity
4. Asset Turnover

Q12. Inventory and receivables are both current assets.

Options

1. FALSE
2. Can't Say
3. Sometimes
4. TRUE

Q13. Credit analysis, or the assessment of creditworthiness, is undertaken by analysing and evaluating
information relating to a customers history?

Options

1. Non-Financial
2. Non-Monetary
3. Financial
4. Monetary

Q14. The objective of liquidity ensures that companies are able to meet their liabilities as they fall due,
and thus remain in business.

Options

1. Rare
2. TRUE
3. Sometimes
4. FALSE

Q15. Funds held in the form of cash do not earn a return.

Options
1. TRUE
2. Sometimes
3. FALSE
4. Rare

Q16. Holding costs can be . by reducing the level of inventory held by a company.

Options

1. minimised
2. control
3. increased
4. reduced

Q17. Which technique brings inventory and cash requirment drastically down?

Options

1. LIFO
2. Baumal
3. ABC
4. JIT

Q18. Which model belongs to cash management?

Options

1. LIFO
2. Miller Orr
3. HIFO
4. ABC

Q19. JIT stands for just in . .

Options

1. totality
2. technical
3. tenure
4. time

Q20. The factors to be considered in formulating a trade receivables policy relate to credit analysis,
credit control and receivables collection.

Options

1. TRUE
2. Sometimes
3. Rare
4. FALSE

Q21. Companies with the same business operations may have levels of investment in working
capital as a result of adopting different working capital policies.

Options

1. lower
2. higher
3. different
4. Same

Q22. Receibles management is all about?

Options

1. Cash Management
2. Loan Management
3. Credit Management
4. All

Q23. The main reason that companies fail, though, is because they run out of .

Options

1. Customers
2. Inventory
3. Cash
4. Stock

Q24. Is it right to say that good cash management is an essential part of good working capital
management.

Options

1. Sometimes
2. never
3. Always
4. Can't say