CUSTOMER_CODE
SMUDE
DIVISION_CODE
SMUDE
EVENT_CODE
JULY15
ASSESSMENT_CODE MB0045_JULY15
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
9544
QUESTION_TEXT
Explain the objectives of cash management
SCHEME OF
EVALUATION
The major objectives of cash management in a firm are:
•Meeting payments schedule
•Minimising funds held in the form of cash balances
Meeting payments schedule:
In the normal course of functioning, a firm has to make various
payments by cash to its employees, suppliers and infrastructure bills.
Firms will also receive cash through sales of its products and collection
of receivables. Both of these do not occur simultaneously.
The basic objective of cash management is therefore to meet the
payment schedule on time. Timely payments will help the firm to
maintain its creditworthiness in the market and to foster cordial
relationships with creditors and suppliers. Creditors give cash discount if
payments are made in time and the firm can avail this discount as well.
Trade credit refers to the credit extended by the supplier of goods and
services in the normal course of business transactions.
Minimising funds held in the form of cash balances:
Trying to achieve the second objective is very difficult. A high level of
cash balance will help the firm to meet its first objective, but keeping
excess reserves is also not desirable as funds in its original form is idle
cash and a non-earning asset. It is not profitable for firms to maintain
huge balances.
The efficiency of cash management can be augmented by controlling a
few important factors:
Prompt billing and mailing:
There is a time lag between the dispatch of goods and preparation of
invoice. Reduction of this gap will bring in early remittances
Collection of cheques and remittances of cash:
Generally, we find a delay in the receipt of cheques and their deposits in
banks. The delay can be reduced by speeding up the process of collecting
and depositing cash or other instruments from customers.
Float:
The concept of ‘float’ helps firms to a certain extent in cash
management. Float arises because of the practice of banks not crediting
the firm’s account in its books when a cheque is deposited by it and not
debiting the firm’s account in its books when a cheque is issued by it,
until the cheque is cleared and cash is realized or paid respectively.
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
9546
QUESTION_TEXT
Discuss the different forms of dividend
SCHEME OF
EVALUATION
Cash Dividend: Most companies pay dividends in cash. The investors
also, especially the old and retired investors, depend on this form of
payment for want of current income.
Scrip dividend: In this form of dividend, equity shareholders are issued
transferable promissory notes with shorter maturity periods, which may
or may not bear interest. This form is adopted if the firm has earned
profits and it will take some time to convert its assets into cash. Payment
of dividend in this form is done only if the firm is suffering from weak
liquidity position.
Bond dividend: Scrip and bond dividend are the same, except that they
differ in terms of maturity. Bond dividends carry longer maturity periods
and bear interest, whereas scrip dividends carry shorter maturity periods
and they may or may not carry interest.
Stock dividend( bonus shares): Stock dividend, as known as USA or
bonus shares, as known in India, is the distribution of additional shares
to the shareholders at no additional cost. This has the effect of increasing
the number of outstanding shares of the firm. The reserves and surplus
are capitalized to give effect to bonus issue. This decision has the effect
of recapitalization, that is, transfer from reserves to share capital and not
changing the total net worth. The investors are allotted shares in
proportion to their present shareholding. Declaration of bonus shares has
a favourable psychological effect on investors. They associated it with
prosperity.
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
9547
QUESTION_TEXT
What is capital budgeting decision? Highlight its types
SCHEME OF
EVALUATION
Meaning of capital budgeting: Capital budgeting is a blue–print of
planned investments in operating assets. Thus, capital budgeting is the
process of evaluating the profitability of the projects under consideration
and deciding on the proposal to be included in the capital budget for
implementation.
Types:
●Decision to replace the equipments for maintenance of current level of
business or decisions aiming at cost reductions, known as replacement
decisions
●Decisions expansion through improved network of distribution or on
expenditure for increasing the present operating level
●Decisions for production of new goods or rendering of new services
●Decisions on penetrating into new geographical area
●Decisions to comply with the regulatory structure affecting the
operations of the company, like investments in assets to comply with the
conditions imposed by Environmental Protection Act
●Decisions on investment to build township for providing residential
accommodation to employees working in a manufacturing plant
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73182
QUESTION_TEXT
What is financial management? Explain the functions of finance?
SCHEME OF
EVALUATION
Financial management of a firm is concerned with procurement and
effective utilisation of funds for the benefit of its shareholders. It is the
art and science of managing money. 2M
Finance functions
1. Financing decisions
2. Investment decisions
3. Dividend decisions
4. Liquidity decisions
2M each with explanation
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125904
QUESTION_TEXT
Explain the concepts of working capital.
a.
b.
SCHEME OF EVALUATION
c.
d.
Gross working capital
Net working capital
Permanent working capital
Temporary working capital
(3 marks)
(3 marks)
(2 marks)
(2 marks)
QUESTION_TYPE DESCRIPTIVE_QUESTION
QUESTION_ID
125911
Mr. Madan invests Rs. 500, Rs. 1000, Rs. 1500, Rs. 2000 and Rs. 2500 at the
end of each year for 5 years. Calculate the value at the end of 5 years
QUESTION_TEXT
compounded annually if the rate of interest is 5 % p.a.
SCHEME OF
EVALUATION
End
of
year
1
Amount
invested
(Rs.)
500
Number of
years
compounded
4
Compounded
FV in
interest factors
Rs.
from tables
1.216
608
2
1000
3
1.158
1158
3
1500
2
1.103
1654
4
2000
1
1.050
2100
5
2500
0
1.000
2500
Amount at the end of the fifth year is Rs. 8020
The value at the end of the fifth year is Rs. 8020
8020