Mb0045 Financial Management Solved Assignments 2015 Movies
MB0045: Given the following information in terms of per unit costs, prepare a statement showing the working capital requirement.
Raw material 60
Direct labour 22
Total cost 126
Selling price 140
The following additional information is available:
Average raw material in stock one month
Average materials in process 15 days
Credit allowed by suppliers one month
Credit allowed to debtors two months
Time lag in payment of wages 15 days
Time lag in payment of overheads one month
Sales on cash basis 20%
Cash balance to be maintained 80,000
You are required to prepare a statement showing the working capital required to finance a level of activity of 100,000 units of output. You may assume production is carried out evenly throughout the year and payments occur similarly. Assume 360 days in a year.
Estimation of Working Capital
a) Investment in inventory
1. Raw material = RMC x RMCP
= 100,000 x 60 x 30
2. Work in process inventory = COP x WIPCP
= 100,000 x 126 x 15
3. Finished goods inventory = COS x FGCP
= 100000 x 126 x 60
b) Investment in debtors = Cost of credit sales x DCP
= 80,000 x 126 x 60
c) Cash Balance = 80,000
d) Total Current Asset (A+B+C) = 4,885,000
e) Current Liabilities
1. Creditors = Purchase of raw materials x PDP
= 100,000 x 60 x 30 / 360 = 500,000
Wages = 100,000 x 22 x 15 / 360 =91,667
3. Overheads = 100000 x 44 x 30/360 = 366,667
f) Total Current Liabilities = 958334
Net Working Capital (D – F) = 3,926,666
Tags: Business, Capital IQ, Finished good, Fiscal year, Inventory, Raw material, Trailing twelve months, Working capital
Q1. Why wealth maximization is superior to profit maximization in today¶s context?Justify you answer?Answer:
Superiority of Wealth Maximization over Profit Maximization:1.
It is based on cash flow, not based on accounting profit.
hrough the process of discounting it takes care of the quality of cash flows. Distantuncertain cash flows into comparable values at base period facilitates better comparison of projects.
here are various ways of dealing with risk associate withcash flows.
hese risk are adequately considered when present values of cash of any project.
In today¶s competitive business scenario corporate play a key role. In company fromof organization, shareholders own the company but the management of the companyrests with the board of directors. Directors are elected by shareholders and henceagents of the shareholders. Company management procures funds for expansion anddiversification from Capital Markets. In the liberalized set up-, the society expectscorporate to tap the capital market effectively for their capital requirements.
hereforeto keep the investors happy through the performance of value of shares in the market,management of the company must meet the wealth maximization criterion.
hen a firm follows wealth maximization goal, it achieve maximization of marketvalue of share.
hen a firm pact wealth maximization goal, it is possible only when procedures quality goods at low cost. On this account society gains became of thesociety welfare.
Maximization of wealth demands on the part of corporate to develop new products or render new services in the most effective and efficient manner.
his helps theconsumers all it will bring to the market the products and services that consumer¶sneed.
nother notable features of the firms committed to the maximization of wealth is thatto achieve this goal they are forced to render efficient service to their customers withcourtesy.
his enhance consumer and hence the benefit to the society.
rom the point of evaluation of performance of listed firms, the most remarkablemeasure is that of performance of the company in the share market. Every corporateaction finds its reflection on the market value of shares of the company.
herefore,shareholders wealth maximization could be considered a superior goal compared to profit maximization.
ince listing ensures liquidity to the shares help by the investors shareholders can reapthe benefits arising from the performance of company only when they sell their shares.
herefore, it is clear that maximization of the net wealth of shareholders.
herefore we can conclude that maximization of wealth is the appropriate of goal of financialmanagement in today¶s context.