58,12,500 = 0.8x (B) There is a direct and proportional relationship (C) Not change Answer: Purchases = 4,20,000 Current Assets = 960 Lakhs; Current Liabilities = 360 Lakhs Question 93. (A) 10,00,000 (B) Sales. In theory, a business could become bankrupt even if it is profitable. (B) 99 days (D) 7.66 Answer: 3,18,75,000 = 0.75 (x 70,00,000) (C) 16.50% (B) Changes in working capital may bring about an adjustment of dividend policy. 1 Sources of permanent working capital are the following a Owners funds are the. (C) Stock (C) 16.50%, Question 146. If the company were to invest all $1 million at once, it could find itself with insufficient current assets to pay for its current liabilities. = 315 Lakhs, Question 131. Sales = 25,00,000 (D) 18.67% C. portion of net working capital that is financed from long-term sources. (B) Aggressive current assets policy, Question 33. The ratios of cost to selling price are 3,15,000 = [0.75 (9,60,000 x)] 3,60,000 (B) 19,250 The effective tax rate is 40%. (B) Net working capital (A) 11,000 (B) 7596 of Current Assets Current Liabilities (C) Account receivable balance at the end of the period For reducing and controlling working capital requirement which of the following step is required to be taken (B) 42,12,000 Answer: TOP 21 Working Capital Management MCQ With Answers Admin MCQ Financial Management, MBA MCQ Given below are Working Capital Management MCQ with answers updated in 2021. Minimum difference between current assets and current liabilities C. Portion of net working capital that is financed from long-term sources D. Amounts that must be held to meet debt covenants B. Direct expenses 5% (A) 18,000 insufficient to cover the debt. (A) 2.48 (B) the company is able to select profitable projects. Working capital is a measure of a companys liquidity and short-term financial health. Question 18. (A) 57,41,813 (A) Working cycle (D) Hard current liabilities (C) Net working capital Liquid Ratio = ? Credit Sales = 24,00,000 Financing a long-lived asset with short-term financing would be .. refers to the difference between current asset and current liabilities. (A) 47 days A conservative policy means Working capital is also known A firm's permanent working capital refers to the: difference between fixed assets and current, maximum difference between current assets and current, portion of net working capital that is financed from long-term. We also reference original research from other reputable publishers where appropriate. Level of activity 1.56,000 units Now the president suddenly announces that it, Kappa Corp and Lambda Corp are identical except that Kappa pays a dividend of $5 per share, while Lambda pays no dividend and uses the cash to repurchase stock. In valuation, the focus is on noncash working capital. Answer: Become provides you with easy online application services to access loans from third party lenders. Company expects to earn 15% before interest and taxes on sales of 30,00,000. For example, say a company has $100,000 of current assets and $30,000 of current liabilities. Fuel, intact tires, and oil are all required. (D) None of the above (B) 24,00,000 (C) Fixed Assets Question 19. When a company has excess current assets, that amount can then be used to spend on its day-to-day operations. fixed overheads will remain same i..e. 36,000. Question 7. Net working capital refers to ___________. (A) Trade-off between profitability and risk. (A) the firm may not be able to its long term finance Working Capital Ratio: What Is Considered a Good Ratio? It is stated in the problem that rate of gross profit is 2096 and export sales price 1096 below domestic price. C. It fluctuates over time. Thus, wages are paid 3rd & 5th week which shows that lag in payment of wages is 2 week. Answer: (C) Operating cycle (D) the company currently is able to meet its short-term liabilities Stock = ? (B) 37,80,000 (C) Accounts payable days 3,18,75,000 = 75% of (Current Assets Current Liabilities) Creditors 17,55,000 (D) 35 days & 25 days A Ltd. financial statement shows the following data: (C) (1), (2) & (3) I. (D) 1.33 (D) All of the above (A) Current ratio, Question 77. (D) Current assets less current liabilities, Question 4. (A) lower return and risk. (D) Overtone 9,75000 = Total Overheads \(\frac{30}{360}\) Calculate the debtors on cash cost basis form the following information for working capital purpose: (B) 24.00%, Question 144. Note: 1 Year = 360 days The interest rate is 10% on all debts. (B) 23,40,000, Question 100. Calculate closing stock of WIP on cash cost basis. Raw material storage period 55 days (D) All of the above. 3. (D) Neither (A) nor (B) Working capital = 8,40,000 Current Ratio = ? Course Hero is not sponsored or endorsed by any college or university. (D) 6,65,000 Purchase of stock for cash will current ratio. You are required to calculate working capital on cash cost basis. Management of working capital involves the following four aspects: Determining the total fund requires to meet the current operations of the firm. Stock velocity = 6 month If your answer is no, then youve come to the right place. Question 8. (B) Temporary working capital Question 34. Negative working capital is an indicator of poor short-term health, low liquidity, and potential problems paying its debt obligations as they become due. The interest rate is 10% on all debts. Aggressive approach covers those policies The term 'working capital' generally refers to current assets only. True or False, Splitterfield Foods forecasts the following sales and expenses: June July August Sales ($ millions) 120 150 160 Purchases of raw materials ($ millions) 70 80 85 Other expenses ($ millions) 30 38 40, Zeta Corp has 1,000 shares outstanding. Effective management of working capital improves a firm's overall return on . Answer: x = Current Assets = 20,93,250 C. portion of net working capital that is financed from long-term sources. A lower current assets/fixed assets ratio means Question 35. = 12,89,625, Question 150. (D) 32,803 (B) 43 days By only looking at immediate debts and offsetting them with the most liquid of assets, a company can better understand what sort of liquidity it has in the near future. What can be considered the firms permanent working capital? (C) an example of high risk high (potential) profitability asset financing. The duration of time required to complete the following cycle of events in case of a manufacturing firm is called the operating cycle (Working CapitalCycle): Conversion of cash into raw materials. (C) Both (A) & (B). Debtors Collection Period: Question 94. Which best describes the gross margin ratio? (A) 9,60,000 Looking for a standardized formula to calculate permanent working capital? Liquid ratio 1.6 (C) 315 Iakhs . (D) 0.435; 0.405 (A) 12,98,625 (B) 10,00,000 Total cost of sales and sales of Gama Ltd. is 3,19,80,000 and 4,13,40,000 respectively. (A) an example of moderate risk-moderate (potential) profitability asset financing. Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. Answer: (C) Liquid ratio (A) Current ratio Answer: Cost of goods sold = 20,00,000 We reviewed their content and use your feedback to keep the quality high. (C) Cost of Goods Sold Working capital is important because it is necessary for businesses to remain solvent. (D) Business cycle Current liabilities are 70,00,000. (B) Regression analysis method Answer: If a firm has 100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firms Net Working Capital? (B) the average number of days it takes to produce the product that company intends to sale. (B) Risk Raw material stock velocity 79 days Pages 299 This preview shows page 240 - 242 out of 299 pages. (C) 31,250 (B) Accounts receivable days Current Ratio 2.8 Prepaid expenses 37,500 (A) 16,667 All assets financed with a 50 percent equity, 50 percent long-term debt mixture. Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. (B) 22,67,000 Total sales = ? x = Creditors = 3,00,000, Question 120. (D) 90,000; 31,920 Answer: (D) All of the above (D) Receivables and payables (B) 20,000 (D) 25,00,000 (D) Debtors less provision for bad and doubtful debts Gross working capital refers to Net Working Capital is the amount by which current assets exceed the current liabilities of a business. Answer: (C) Both Statement I and Statement II are correct. Answer: (C) 75%of(CoreCurrentAssets-Current Liabilities) (D) Trading capital What will be the amount of maximum permissible bank finance as per first method of Tandon Committee Norms? The company has more short-term debt than it has short-term resources. The optimal level of working capital is that which provides a 2:1 ratio of current assets to current liabilities. Paucity of working capital may lead to a situation where Plainly put, permanent working capital is the minimum amount of working capital that is needed for a business to cover all current liabilities and also continue operating. (D) Credit period, Question 69. D) firm uses no equity in its capital structure. (A) 28,00,000 What happens to a firm whose uses of cash exceed its sources of cash during an accounting period? A positive working capital means that Question 58. If you see your working capital finance is starting to take a dip, consider taking a permanent working capital loan. Permanent working capital financed with long-term liabilities. (B) 1.52 To calculate working capital, subtract a company's current liabilities from its current assets. (C) Both Statement I and Statement II are correct. Answer: Answer: (B) 5,50,000 (C) Liquidity Ratios, Question 88. (D) (1), (2), (3) and (4), Question 17. (A) Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. (A) I If you. (C) the firm may not be able to achieve its sale target (B) average number of days it takes to pay a supplier invoice. Its current liability are 1,60,000 which includes provision for tax 60,000. For 1st & 2nd week: in the 3rd week Debtors as per working capital A conservative policy implies D. amounts that must be held to meet debt covenants. Getting your hands on the right type of working capital finance no longer requires you filling out mountains of paperwork! (B) refers to the firms investment in current assets. Suppliers of material extend 4 week credit. What is the expected return on equity if company follows AggressivePolicy? compounded quarterly. (C) 315 Iakhs Determine net cash flow from financing activities. (D) Aggressive Approach Answer: In Current Ratio. Answer: (C) 10,10,000, Question 116. 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