ACC501 Fall 2011 Final Term Feb 2012 – VU Current Paper – 10 Feb 2012

Most of the 62 MCQs are unseen

7 Subjective Questions

Q1. Calculate Quick Ratio and current Ration with assets and liabilities data?

Numerical tha..

Q2. What is current Net Working Capital and current assets. Specify current assets with liquidity order?

Q3. If policies are flexible with regard to current assets then what recommendations?

Keep larger cash/marketable securities balances

Larger investments in inventory

More liberal credit terms, thus higher accounts receivable

Q4. Risk-free investments are currently offering 8%. Expected Return 20%. What is risk premium.

Q5. Overall capital cost? 3

Q6. numerical 500,000 investment, interest rate 8%, 35% tax Interest after tax Earnings before interest and taxes (see Page 21 example)

Q7. Carrying cost and shortage cost

Carrying costs

> Increase with increased levels of current assets

> are the costs to store and finance the assets,

> are the opportunity costs associated with current assets (inventories vs. short term investments)

Shortage costs

> decrease with increased levels of current assets

> are the costs to replenish assets

> Trading or order costs (avoiding stock-outs or cash-outs through more frequent orders, etc.)

> Costs related to lack of safety reserves, i.e., lost sales and customers and production stoppages

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