Question

FINANCIAL MANAGEMENT

1) What do you understand by operating cycle? What Factor will increase the duration of operating cycle and what will be its impact on total size of the working and on the total size of sales turnover?

2) A company is considering purchase of a new plant. In the market two plants A and B are

available. The details are as follows:

1) Capita cost

2) Estimated Economic life (yrs)

3) Salvage value (rs) 4)Annual cash flow (rs)

PLANT A

1000000

10

100000

250000

PLANT B 1000000

10

150000

200000

Depreciation is to be provided as straight line method. Using accounting rate of retum method

and suggest which of the two plants will be more profitable.

3) A company is considering the following the following investment projects,

CASH FLOW (RS)

C2

+7500

+4000

+3000

Projects A

B C

D

-10000

-10000 -10000

-10000

CI

+10000

+7500 +2000

+10000

C3

+12000 +3000

a) You are require to Rank the project according to each of the following methods: NPV and IRR. Assuming discount rates of 10 % and 30 %.

b) Which project is the best?

4) What do you understand by Intermal Rate of Return? Why is it called internal rate of return and how is it different from the present value methods?

5) Explain the cost of liquidity and illiquidity. What is the impact of this cost on the le
vel of


current assets?​

Answer 1

Answer:

a)An Operating Cycle (OC) refers to the days required for a business to receive inventory, sell the inventory, and collect cash from the sale of the inventory. This cycle plays a major role in determining the efficiency of a business.