ms-41 solved assignment
ASSIGNMENT
Course Code : MS-41
Course Title : Working Capital Management
Assignment No. : MS-41/TMA /SEM-I/2013
Coverage : All Blocks
Note : Attempt all the questions and submit this assignment on or before 30th April, 2013 to the coordinator of your study center.
1. Explain the Walker’s and Trade off approaches to working capital investment.
2. Discuss the motives for holding cash. Explain the Baumol Model and Miller and Orr Model.
3. What are advances? Explain the modes of creating charge over assets.
4. What are the commercial paper? Discuss the existing guidelines issued by RBI to regulate issuance of commercial papers.
5. What are the different forms of trade credit? Discuss the various determinants of trade credit.
Realising the dearth of pertinent literature on workingcapital management, Walker in his study (1964)2 made apioneering effort to develop a theory of working capitalmanagement by empirically testing, though partially, threepropositions based on risk-return trade-off of working capital 49
4. management. Walker studied the effect of the change in thelevel of working capital on the rate of return in nine industriesfor the year 1961 and found the relationship between the levelof working capital and the rate of return to be negative. On thebasis of this observation, Walker formulated three followingpropositions: Proposition I─ If the amount of working capital is tofixed capital, the amount of risk the firm assumes is also variedand the opportunities for gain or loss are increased. Walker further stated that if a firm wished to reduce itsrisk to the minimum, it should employ only equity capital forfinancing of working capital; however by doing so, the firmreduced its opportunities for higher gains on equity capital as itwould not be taking advantage of leverage. In fact, theproblem is not whether to use debt capital but how much debtcapital to use, which would depend on management
Course Code : MS-41
Course Title : Working Capital Management
Assignment No. : MS-41/TMA /SEM-I/2013
Coverage : All Blocks
Note : Attempt all the questions and submit this assignment on or before 30th April, 2013 to the coordinator of your study center.
1. Explain the Walker’s and Trade off approaches to working capital investment.
2. Discuss the motives for holding cash. Explain the Baumol Model and Miller and Orr Model.
3. What are advances? Explain the modes of creating charge over assets.
4. What are the commercial paper? Discuss the existing guidelines issued by RBI to regulate issuance of commercial papers.
5. What are the different forms of trade credit? Discuss the various determinants of trade credit.
Realising the dearth of pertinent literature on workingcapital management, Walker in his study (1964)2 made apioneering effort to develop a theory of working capitalmanagement by empirically testing, though partially, threepropositions based on risk-return trade-off of working capital 49
4. management. Walker studied the effect of the change in thelevel of working capital on the rate of return in nine industriesfor the year 1961 and found the relationship between the levelof working capital and the rate of return to be negative. On thebasis of this observation, Walker formulated three followingpropositions: Proposition I─ If the amount of working capital is tofixed capital, the amount of risk the firm assumes is also variedand the opportunities for gain or loss are increased. Walker further stated that if a firm wished to reduce itsrisk to the minimum, it should employ only equity capital forfinancing of working capital; however by doing so, the firmreduced its opportunities for higher gains on equity capital as itwould not be taking advantage of leverage. In fact, theproblem is not whether to use debt capital but how much debtcapital to use, which would depend on management