Page 145 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Working Capital Management

Notes (a) Should Vasu lower the usage fee if his discount ratio for this project in 20%?
(b) At what discount rate would he be indifferent to lowering the usage fee?
7. “The cash budget is just a glorified name for cash forecast.” Comment on this statement,
indicating whether you agree with it and why you think the statement was made.
8. What constitutes a useful forecast? What does usefulness include beyond forecast accuracy?
9. On what variable you would conduct sensitivity analysis for a simple cash budget and
why?
10. If you were asked to forecast cash inflows from credit sales, what possible sources of data
could you use?

11. Compare and contrast the scheduling approach with the distribution approach for daily
cash forecasting. Which is more useful for which types of cash flows?

Answers: Self Assessment

1. False 2. True

3. True 4. Cash forecast
5. surplus, periods 6. Collection rate
7. False 8. False
9. True 10. True
11. financial future 12. small

13. time value, opportunity cost 14. price difference
15. buyer’s 16. asset, price
17. organised/standardized 18. margin

19. short sale 20. calls, puts
21. capital needs 22. margin requirement

8.9 Further Readings

Books D.R. Mehta, Working Capital Management, Prentice-Hall Inc., 1974.
J.Mcn Stancil, The Management of Working Capital, Intex, 1971.
K.V. Smith, Readings in the Management of Working Capital, West Publishing
Company, 1980.
P. Gopalakrishnan and M.S. Sandilya, Inventory Management, Macmillan, 1978.

Online links www.transactionservices.citigroup.com
www.workingcapitaldefinition.org

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