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MS-41 Solved Assignment Working Capital Management

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  • Version: Jan - June 2015

Solutions Available: Yes

Soft Copy: Yes

Q. Distinguish the different working capital financing strategies. Under the present capital and money market conditions which of these would you recommend to a consumer durable manufacturing firm. Explain with reasons & list out your assumption, if any.
Answer. Working capital is a financial metric which represents operating liquidity available to a business, organization or other entity...... Working capital measures how much in liquid assets a company has available to......... he firm's operations will have been long term financed by equity from owners and by......

Q. You are required to recommend as to which of the policies given below should be adopted by a trader who wants to pursue a more liberal credit policy to improve sales. His current sales are Rs. 15 lacs per annum & average collection period is 30 days.

Credit Policy

Increase in Collection Period

Increase in Sales


15 days



30 days



45 days



60 days



90 days


The selling price per unit is Rs. 5. Average cost per unit is Rs. 4 and variable cost per unit is Rs. 2.75 paise per unit. The required rate of return on additional investment is 20 percent. Assume 360 days a year and that there are no bad debts.
Answer. .........

Q. Assume that the following quantity discount schedule, for a particular bearing, is available to a retails store:

Order Size (units)








200 and above


The cost of a single bearing with no discount is Rs. 30. The annual demand is 250 units. Ordering cost is Rs. 20 per order and annual inventory carrying cost is Rs. 4 per unit. Determine the optimal order quantity and the associated minimum total cost of inventory and purchasing costs if shortage is not allowed.

Q. Assume that you are in import business. Does a bank need to be satisfied about your credit worthiness before extending non fund facilities to you. Discuss this issue with a Banker and explain fully.
Answer. Credit facilities, which do not involve actual deployment of funds by banks but help the obligations to obtain certain facilities from third parties, are termed as non-fund based facilities. These facilities include issuance.... The monitoring of non-fund based facilities is as important as the monitoring of fund-based facilities for controlling and monitoring of the credit........

Q. "In simulating financial decision, the strategy that produces the best simulated result is not necessarily the optimal financing strategy", do you agree with this statement? Why or why not?
Answer. ......


MS-41 Solved Assignment IGNOU MBA

This page is dedicated to IGNOU Master of Business Administration (MBA) MS-41 Working Capital Management Solved Assignment. You can download IGNOU MBA MS 41 Solved Assignments of Jan - June 2015 here.

Old Sample Answer

Q. What is Working Capital?
Answer. Working capital is a measure of a company's current assets less its current liabilities........... The management of working capital is a crucial element of cash flow management......
Managing working capital is essential for success, as the ability to avoid a cash crisis and pay debts as they fall due depends on managing
Receivables, through effective credit approval, invoicing, and collection activity
Inventory, through effective ordering, storage, and identification of inventory Payables, by negotiation of trade terms and through taking advantage of prompt-payment discounts
Cash, by effective forecasting, short-term borrowing, and/or investment of surplus cash where possible
The working capital cycle works (at least in theory) as follows: a firm will purchase inventory (either as finished goods or as raw materials) on credit from its suppliers (appearing as creditors in the working capital)...... After production has taken place the finished goods will be sold on to customers as either cash or credit sales (now appearing as trade receivables in the working capital)........... The firm will eventually receive the cash from these credit customers, which in turn can then be used to settle the amounts owing to the credit suppliers as well as any other obligations it has run up during this period, such as wages and other expenses..........
A firm will wish to minimize the length of its working capital cycle. The longer a firm holds inventories and the longer a firm takes to collect cash from its customers in respect of credit sales, the more likely a firm will face liquidity problems........ Therefore a firm will want to minimize the time cash is tied up in working capital, so as to avoid potential difficulties with cash flow.
The working capital cycle (also known as the firmís operating cycle) can also be measured in terms of the time taken for money to pass through each stage of the working capital. The operating cycle for its working capital will consist of the following timings for cash being tied up in the various stages of the working capital cycle.........
The objective of working capital management by all the firms is to provide enough liquidity so that production process continues smoothly during the normal course of the business.......... Further, the focus is to maintain an optimum level of current assets so that funds of the firm do not remain unnecessarily idle.......... The finance manager aims at efficiently managing the current assets and liabilities to meet the firmís working capital requirement. Inefficient working capital management may lead to higher cost of funds and may increase the risk profile of the firm.

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