Financial Management

Assignment A

1. Explain why debt is usually considered the cheapest source of financing available?

2. Differentiate 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 capital—do you have enough?
Lending institutions are scrutinizing an operation’s working capital status as part of the lending decision. Now more than ever, it’s time to do a little scrutinizing you.  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 changed…the 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. It’s a measure of an operation’s buffer to meet its short-term obligations, hence the importance to lenders.
Perhaps equally important, it’s 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 don’t 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 week’s graph highlights USDA’s updated aggregate working capital estimates in agriculture. Clearly, as last week’s 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. That’s 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.

Questions:-

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?

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
Options    
Financial    
Economical    
Traditional    
None of the above

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 revenues, controlling costs and producing a satisfactory return on capital invested in the division.
Options
Breakage
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, and 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 analysing 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 liabilities 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 requirement drastically down?
Options
LIFO 
Bauman
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 working capital as a result of adopting different working capital policies.
Options
lower
higher
different
Same

Question No.  22
Receivable 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 working 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 and 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 of 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 profitability.
Options
TRUE
FALSE
rare
Sometimes

Question No.  29
………………….. Are your business “scores” that come from your Income Statement and Balance Sheet, not the Cash Flow Statement?
Options
Marks 
Financial Scores 
Points
Ratios

Question No.  30
Working capital investment policy is concerned with the level of investment in ………… assets, 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 foreign 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 investment.
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

41. Wealth management and profit maximisation are the concepts.

Yes 
Sometimes 
No

Can't say