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FM09-CH 31 PDF

This document discusses working capital finance and contains three problems related to commercial paper. The first problem calculates the maximum permissible bank finance and working capital gap using two different methods. The second problem calculates the effective cost of commercial paper (CP) given the funds to be raised, costs of issuance, and maturity period. The third problem again calculates the effective cost of CP for a given face value, discounted value, costs, and maturity period.

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150 views2 pages

FM09-CH 31 PDF

This document discusses working capital finance and contains three problems related to commercial paper. The first problem calculates the maximum permissible bank finance and working capital gap using two different methods. The second problem calculates the effective cost of commercial paper (CP) given the funds to be raised, costs of issuance, and maturity period. The third problem again calculates the effective cost of CP for a given face value, discounted value, costs, and maturity period.

Uploaded by

Naveen Rai
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Ch.

31 Working Capital Finance

CHAPTER 31

WORKING CAPITAL FINANCE

Problem 1

Norms: Months
RM 2.75
WIP 0.50
FG 2.00
AR 1.25
Production plan data: Rs lakh
Raw material consumption 173
Cost of production 238
Cost of sales 280
Sales 291

PBF: Permitted Actual


(Rs lakh) (Rs lakh)
Raw material 40 60
WIP 10 17
FG 47 52
AR 30 98
OCA 48 48
Total 175 275
Less: OCL 58 58
WCG 117 217
First method:
Long-term funds 25% 29
MPBF (117 - 29) 75% 88 139
Second method:
Long-term funds 25% 44
MPBF (117 – 44) 75% 73 139

Problem 2

(Rs lakh)
A. Funds to be raised 1500.00
B. Discount 11.25% 168.75
C. Available cash [A - B] 1331.25
D. Stamp duty 0.50% 7.50
E. Issuing charges 3.75
F. Rating charges 0.40% 6.00
G. Total cost [B + D + E+ F] 186.00
H. Maturity (days) 120.00
I. Effective cost of CP
[(186/1331.25)x(360/120)] 42%

1
I. M. Pandey, Financial Management, 9th Edition, Vikas.

Problem 3

(Rs lakh)
A. Face value 100.00
B. Discounted value 94.75
C. Discount [A - B] 5.25
D. Stamp duty 0.50% 0.50
E. Issuing charges 0.20% 0.20
F. Rating charges 0.35% 0.35
G. Dealer's fee 0.15% 0.15
H. Total cost [C + D + E + F] 6.45
I. Maturity (days) 90.00
J. Effective cost of CP
[(6.45/94.75) x (360/90)] 27%

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