Solapur University Question Paper
M.B.A. – II (Semester – IV) (New) Examination, 2014
FINANCIAL MANAGEMENT (Paper – III) (Group – B)
Project Planning and Working Capital Management
Day and Date : Tuesday, 13-5-2014 Total Marks : 70
Time : 11.00 a.m. to 2.00 p.m.
Instructions : 1) Q. 1 is compulsory.
2) Attempt any two questions from Q. No. 2, 3 and 4.
3) Attempt any two questions from Q. 5, 6 and 7.
1. A Steel Ltd. is considering two mutually exclusive projects. Both require an initial
cash outlay of Rs. 10,000/- each and have a life of five years. The companies
required rate of return is 10% and pays tax at 50% rate. The project will be
depreciated on a straight line basis. The profit before depreciation and taxes
expected to be generated by the projects are as follows :
Year 12 34 5
Project 1 (Rs.) 4,000 4,000 4,000 4,000 4,000
Project 2 (Rs.) 6,000 3,000 2,000 5,000 5,000
You are required to calculate :
i) Payback period of each project;
ii) Accounting rate of return of each project.
iii) Net present value and Profitability index for each project.
iv) Internal rate of return for each project. 14
2. Write short notes on (any two) : 14
a) Generating and screening of idea
b) IDFC
c) Various level of inventory control.
P.T.O.
SLR-XY – 81 -2-
3. Attempt any two of the following : 14
a) Mr. Kamal has recently set up a restaurant in a prominent shopping complex.
His business is good but because of heavy personal withdrawals he is facing
a liquidity problem. To get a better handle over his cash flows, he requests
you to prepare a cash budget for the next quarter, January through March, for
him. He has provided you with the following information :
i) Sales are expected to be : Rs. 50,000 in January, Rs. 55,000 in February,
and Rs. 60,000 in March. All sales will be in cash.
ii) His estimated purchases are : Rs. 20,000 in January, Rs. 22,000 in
February and Rs. 25,000 in March. Payments for purchases will be made
after a lag of one month. Outstanding on account of purchases in December
last are Rs. 22,000.
iii) The rent per month is Rs. 5,000 and his personal withdrawal per month is
Rs. 5,000.
iv) Salaries and other expenses, payable in cash are expected to be
Rs. 15,000 in January, Rs. 18,000 in February and Rs. 20,000 in March.
v) He plans to buy furniture worth Rs. 25,000 on cash payment in February.
vi) The cash balance at present is Rs. 5,000. His target cash balance, however
is Rs. 8,000. What will be surplus/deficit of cash in relation to his target
cash balance.
b) Factors determining the cash need.
c) Receivables management various costs.
4. Solve any two from the following : 14
a) Causes and symptoms of sick unit.
b) A manufacturing company has an expected usage of 100,000 units of certain
product during the next year. The cost of processing an order is Rs. 40 and
the carrying cost per unit is Rs. 0.50 for one year. Lead time on an order is
five days and the company will keep a reserve supply of two days usage. You
are required to calculate :
a) The EOQ and
b) The reorder point (Assume 250 days year).
c) A company sells 40,000 units of its products per year at Rs. 35 per unit. The
average cost per unit is Rs. 31 out of which variable cost per unit is Rs. 28.
The average collection period is 60 days. Bad debts losses are 3% on sales
and the collection charges amount to Rs. 15,000/-
-3- SLR-XY – 81
The company is considering the proposal to follow strict collection policy
which would bring down the losses on account of bad debts to 1% of sales
and average collection period to 45 days. It would however, reduce the sales
volume by 2000 units and increase collection expenses to Rs. 25,000/-
The company required a rate of return of 20%. Would you recommend the
adoption to the new credit policy ? (Assume 360 days in a year for purpose of
your calculation).
5. Describe the decision tree approach with the help of an example. How is this
technique useful in capital budgeting ? 14
6. From the following details prepare an estimate of the requirements of working
capital :
Production 60,000 units
Selling price per unit Rs. 5/-
Raw material 60% of selling price
Direct wages 10% of selling price
Overheads 20% of selling price
Material on hand 2 months requirements
Production time 1 month
Finished goods in store 3 months
Credit for material 2 months
Credit allowed to customers 3 months
Average cash balance Rs. 20,000/-
Wages and overhead are paid at the beginning of the month following. In production
all the required materials are charged in the initial stage and wages and overhead
accrue evenly. 14
7. Explain Venture Capital. Explain its features and the early stage of Venture
capital financing. 14
M.B.A. – II (Semester – IV) (New) Examination, 2014
FINANCIAL MANAGEMENT (Paper – III) (Group – B)
Project Planning and Working Capital Management
Day and Date : Tuesday, 13-5-2014 Total Marks : 70
Time : 11.00 a.m. to 2.00 p.m.
Instructions : 1) Q. 1 is compulsory.
2) Attempt any two questions from Q. No. 2, 3 and 4.
3) Attempt any two questions from Q. 5, 6 and 7.
1. A Steel Ltd. is considering two mutually exclusive projects. Both require an initial
cash outlay of Rs. 10,000/- each and have a life of five years. The companies
required rate of return is 10% and pays tax at 50% rate. The project will be
depreciated on a straight line basis. The profit before depreciation and taxes
expected to be generated by the projects are as follows :
Year 12 34 5
Project 1 (Rs.) 4,000 4,000 4,000 4,000 4,000
Project 2 (Rs.) 6,000 3,000 2,000 5,000 5,000
You are required to calculate :
i) Payback period of each project;
ii) Accounting rate of return of each project.
iii) Net present value and Profitability index for each project.
iv) Internal rate of return for each project. 14
2. Write short notes on (any two) : 14
a) Generating and screening of idea
b) IDFC
c) Various level of inventory control.
P.T.O.
SLR-XY – 81 -2-
3. Attempt any two of the following : 14
a) Mr. Kamal has recently set up a restaurant in a prominent shopping complex.
His business is good but because of heavy personal withdrawals he is facing
a liquidity problem. To get a better handle over his cash flows, he requests
you to prepare a cash budget for the next quarter, January through March, for
him. He has provided you with the following information :
i) Sales are expected to be : Rs. 50,000 in January, Rs. 55,000 in February,
and Rs. 60,000 in March. All sales will be in cash.
ii) His estimated purchases are : Rs. 20,000 in January, Rs. 22,000 in
February and Rs. 25,000 in March. Payments for purchases will be made
after a lag of one month. Outstanding on account of purchases in December
last are Rs. 22,000.
iii) The rent per month is Rs. 5,000 and his personal withdrawal per month is
Rs. 5,000.
iv) Salaries and other expenses, payable in cash are expected to be
Rs. 15,000 in January, Rs. 18,000 in February and Rs. 20,000 in March.
v) He plans to buy furniture worth Rs. 25,000 on cash payment in February.
vi) The cash balance at present is Rs. 5,000. His target cash balance, however
is Rs. 8,000. What will be surplus/deficit of cash in relation to his target
cash balance.
b) Factors determining the cash need.
c) Receivables management various costs.
4. Solve any two from the following : 14
a) Causes and symptoms of sick unit.
b) A manufacturing company has an expected usage of 100,000 units of certain
product during the next year. The cost of processing an order is Rs. 40 and
the carrying cost per unit is Rs. 0.50 for one year. Lead time on an order is
five days and the company will keep a reserve supply of two days usage. You
are required to calculate :
a) The EOQ and
b) The reorder point (Assume 250 days year).
c) A company sells 40,000 units of its products per year at Rs. 35 per unit. The
average cost per unit is Rs. 31 out of which variable cost per unit is Rs. 28.
The average collection period is 60 days. Bad debts losses are 3% on sales
and the collection charges amount to Rs. 15,000/-
-3- SLR-XY – 81
The company is considering the proposal to follow strict collection policy
which would bring down the losses on account of bad debts to 1% of sales
and average collection period to 45 days. It would however, reduce the sales
volume by 2000 units and increase collection expenses to Rs. 25,000/-
The company required a rate of return of 20%. Would you recommend the
adoption to the new credit policy ? (Assume 360 days in a year for purpose of
your calculation).
5. Describe the decision tree approach with the help of an example. How is this
technique useful in capital budgeting ? 14
6. From the following details prepare an estimate of the requirements of working
capital :
Production 60,000 units
Selling price per unit Rs. 5/-
Raw material 60% of selling price
Direct wages 10% of selling price
Overheads 20% of selling price
Material on hand 2 months requirements
Production time 1 month
Finished goods in store 3 months
Credit for material 2 months
Credit allowed to customers 3 months
Average cash balance Rs. 20,000/-
Wages and overhead are paid at the beginning of the month following. In production
all the required materials are charged in the initial stage and wages and overhead
accrue evenly. 14
7. Explain Venture Capital. Explain its features and the early stage of Venture
capital financing. 14
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