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FM05

Corporate Finance

(For CNM Cases)

Assignment – II

Assignment Code: 2016FM05A2                                                              Last Date of Submission: 30^th April 2016

                                                                                                                              Maximum Marks: 100

Attempt all the questions.  All the questions are compulsory and carry equal marks.

Section-A       

1.         What is carrying cost and shortage cost? Which policy is recommended if the shortage    cost is relatively lower than the carrying cost and vice versa? Explain the policies    followed in maintaining working capital with examples.

2.         How do you evaluate a proposed credit policy? How does the value of a credit policy       change in case the new policy earns a repeat customer? Explain with examples.

3.         What are the techniques used to accelerate collections in the area of cash management.            Explain with a case study.

4.         What are the different kinds of expansion and contraction policies used by firms?            Explain with example.

Section-B

Pickles Ltd. Produces a single product sold throughout the state of Tamil Nadu. Its profit analysis is given below: Per Unit( Rs) Selling Price 40 Variable costs 36 Fixed cost 3 -39 Net profit per unit 1 Pickles Ltd. has an annual turnover of 4.8 million and an average collection period for debtors of one month. It has conducted a study on entering its neighboring state Kerala and believed that this would produce additional sales of 25%. But the new business would require a 3 months credit period. Stocks and creditors would rise by Rs.4,00,000 and Rs.2,00,000 respectively. The cost of financing any increase in working capital is 10 percent.   The question of whether profits increases as a result of expansion into Kerala markets very much rests on whether the existing Tamil Nadu customers also demand more favorable term. Case  Questions: 1)        What   would   be  the   profit   increase   in case only new customers take 3 months      Credit?         2)   What would be the profit if all customers take 3 months credit.