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B.C.O.E – 143
FUNDAMENTALS OF FINANCIAL MANAGEMENT IGNOU BCOE 143 Solved
Assignment 2023-24
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NOTE: All questions are compulsory.
Section
A
Q1. Explain different sources of short-term finance available to
the organization.
Organizations
often require short-term finance to meet their immediate operational needs,
such as purchasing inventory, covering working capital requirements, or funding
day-to-day expenses. Short-term finance is typically used for a period of up to
one year. There are various sources of short-term finance available to
organizations, each with its own features and advantages. Here are some of the
common sources of short-term finance:
Bank Overdraft:
A bank overdraft allows a company to withdraw more money from its bank account
than the actual balance, up to a specified limit. This can help an organization
meet short-term cash flow needs. Interest is charged only on the amount
overdrawn.
Short-Term
Loans: These are loans taken from financial institutions, typically banks, for
a specific period, usually less than one year. Short-term loans can be secured
(backed by collateral) or unsecured (no collateral), and they can be used for
various purposes.
Trade Credit:
Organizations can negotiate extended payment terms with their suppliers. This
is essentially a form of interest-free credit, as it allows the organization to
pay for goods and services after they have been received and sold.
Commercial
Paper: Large corporations with strong credit ratings can issue commercial
paper, which is a short-term, unsecured promissory note. Investors purchase
commercial paper at a discount and receive the full face value upon maturity.
Accounts
Receivable Financing: Factoring and invoice discounting are methods to raise
short-term finance by selling accounts receivable (outstanding invoices) to a
financial institution at a discount. This provides immediate cash flow while
transferring the risk of collecting payments to the institution.
Inventory
Financing: Inventory can be used as collateral to secure a short-term loan. The
lender advances a percentage of the inventory's value, providing working
capital to the organization.
Working Capital
Loans: These loans are specifically designed to cover working capital needs,
such as payroll and overhead expenses. They are often unsecured and based on
the organization's creditworthiness.
Line of Credit:
A revolving line of credit is a pre-approved loan arrangement with a financial
institution that allows a company to borrow funds as needed up to a specified
limit. Interest is paid only on the amount borrowed.
Supplier Credit:
Negotiating favorable payment terms with suppliers, such as delaying payments
or taking advantage of early payment discounts, can help organizations manage
their cash flow effectively.
Bank Guarantees:
A bank guarantee is a promise by a financial institution to cover a specified
amount if the organization fails to fulfill its obligations. It can be used to
assure suppliers or customers of an organization's financial stability.
Cash Credit:
Cash credit is a form of short-term finance that allows an organization to
withdraw funds up to a certain limit from its bank account. Interest is charged
on the amount withdrawn, and it is suitable for managing daily cash flow.
Microfinance:
For small and micro-enterprises, microfinance institutions offer short-term loans
and working capital support to meet their financial needs.
Crowdfunding:
Organizations can use crowdfunding platforms to raise short-term funds for
specific projects or needs, with contributions coming from a large number of
individuals or investors.
Each source of
short-term finance has its own advantages and considerations. The choice of
source depends on factors like the organization's creditworthiness, the nature
of the funding requirement, and the cost associated with each option. It's
important for organizations to carefully assess their financial needs and
consider the terms and conditions associated with each source before making a
decision.
Q2. Explain the characteristics of financial management.
Describe the role of financial management.
Q3. What do you understand by cost of capital? Explain the methods
for calculating cost of capital.
Q4. State the meaning of dividend policy. Also explain the M
& M model of dividend decision.
Q5. Discuss the procedure for cash flow estimation with suitable
examples.
Section
B
Q6. What is optimal capital structure? Explain.
Q7. State the advantages and disadvantages of pay-back period
method.
Q8. What are the different stages of operating cycle?
Q9. Explain Baumol’s model of cash management.
Q10. Explain the various types of bonds.
Section
C
Q11.
Write short notes on:
a) ABC inventory management
b) Valuation of equity shares
Q12.
Distinguish between:
a) Operating leverage and financial leverage
b) Ordering cost and carrying cost
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