INSTRUCTION I: Choice: FOR ALL QUESTIONS, YOU ARE REQUIRED TO PUT THE LETTER OF

YOUR CHOICE ON THE SPACE PROVIDED ON THE LAST PAGE OF THIS QUESTION PAPER.
1. Which of the following is (are) not true about short – term financing?
A) A short term loan can be obtained much faster than long- term credit
B) Short-term funds allow more flexibility than long-term funds
C) Short – term credit is riskier than long-term funds
D) Short-term funds are more costly than long-term funds
E) None of the above
2. Which of the following could be a source of credit information
A) a credit check through a bank B) Firm’s financial statement
C) Credit ratings from rating companies D) The Company’s past experience
B) All of the above
3. Shorter cash cycle may possibly indicate:
A) long average D) Short average age of
collection period inventory
B) Short operating cycle E) None
C) Long accounts
payable period
4. One of the following is not a task or concept underlying working capital management
A. Speeding up receipt of cash by the firm
B. Delaying the payment of cash within allowable limits
C. Investing any idle cash in productive assets
D. None of the above
5. If a firm holds excess balance of cash, receivables and inventories,
A. Risk level will be relatively high D. Profitability will not be
affected
B. Profitability will be impaired E. C and D are true
C. Risk level will remain unaffected
6. In interpreting cash cycle, which of the following is false
A. Long cash cycle is desirable
B. The cash cycle increases as the inventory and receivable periods get longer
C. The cash cycle can be made shorter by lengthening the payable period
D. The longer the cash cycle, the greater the average cash tied-up and the higher the
opportunity cost

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 E. None of the above
7. Financial statement analysis is/are:
A. A process of synthesis of summarization of financial statements and operative data (presented in
financial statements)
B. It is a technique of investigating the financial positions and progress of the unit.
C. Establishing some relationship between balance sheet and income statement
D. None of the above

The following is the data of TOYOTA

Net profit $ 300,000
Income Tax $ 252,000
Interest $ 46,000
Preference
Preference dividend $ 32,000
8. Then the interest coverage is $ 15

A. 6.52 B. 12 C. 13 D. None of the above

9. From the above figures, fixed coverage is

A. 3.846 B. 7.07 C. 7.67 D. None of the above

10. Current ratio is 2.5, Liquidity ratio is 1.5 and working capital = $ 300,000. What is the amount of
inventory?
A. $ 500,000 B. $ 300,000 C. $ 200,000 D. $ 100,000
11. ____________are prepared to provide time perspective to the consideration of various elements of
operations and financial position of the business embodied in the statement.
A. Comparative statements C. Trend Analysis
B. Common size statements D. Ratio Analysis
12. A motive for holding cash, so as to satisfy usual disbursement activities associated with a firm’s
ongoing operation is called
A) Precautionary motive C) Transaction motive
B) Speculative motive D) Compensating balance

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 INSTRUCTION II: Matching Questions, Match items in column “A” with its
corresponding items in column “B”
Column A Column B
1. Ratio used to Measures Efficiency of asset I. Marketability ratio
2. Ratio used to Measures ability of firm to pay current obligations J. Trend analysis
3. Ratio Used to evaluate marketability of firms share. N. Profitability ratio
4. Ratio used to measure operating performance O. Index Analysis
5. Ratio used to measure proportion of asset from debt T. Current ratio
U. Asset Management ratio
X. Comparative Analysis
Y. Debt management ratio

INSTRUCTION III: Workout questions, Work on the following question, showing all steps of
calculations on the separate rough paper.
Ex1)
Ex2) A firm sets its minimum cash balance as $ 5,000 and estimates the following:
Transaction cost per sale/purchase = $ 15
Standard deviation = $ 1,200 per day
Interest rate = 7.3 percent p.a. or 0.02 per day
Required: - Calculate the spread using Miller-Orr model?
Ex3) A manufacturer has expected annual usage of product “Z” of 10,000 units. The cost of processing
an order of purchases is $ 4, and carrying cost per unit for a year is 10 cents. Lead-time on an order is 1
days and it is a practice to keep stock usage in reserve for 2 days.
Required: - (a) Economic order quantity
(b) Reorder point.
Ex4) A firm has an investment in the credit sales as $ 10,000 and the average collection period allowed to
the customers as 40 days. Find the amount of investment gained and lost when the return on investment
in the business is at 9 percent and borrowings demand an interest at the rate of 12 percent per annum.
The firm has a proposal to increase its sales by increasing the credit days from 40 days to 60 days. Does

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the proposal worth accepting when decrease in sales is expected as 5 percent? Ignore all other expenses
as constant.

Ex5) With the help of the following data of a company draw up balance sheet.
- Inventory turnover 6
- Capital turnover (cost of goods sold) 2
- Fixed Assets turnover (cost of goods sold) 4
- Gross profit ratio 20%
- Receivables collection period 2
Months
- Accounts payable payment period 73 days
(365 days a year)
- Gross profit $
60,000

The closing stock was $ 5,000 in excess of the opening stock.

Balance Sheet
Assets $ Liabilities $
Fixed Assets Capital
Closing Inventory Account Payable
Accounts Receivables
Cash (balancing figure)

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 Answer Sheet
Name_____________________________________ID_____________________

INSTRUCTION I: Choice INST. II: Matching:

1. 6. 11. 16. 1.
2. 7. 12. 17. 2.
3. 8. 13. 18. 3.
4. 9. 14. 19. 4.
5. 10. 15. 20. 5.

INSTRUCTION III: Workout questions

Q1)