What is Management? Is Management Art or Science? What is Future Value of Money?

Question: What is management?

Answer: Management is a process of utilizing business resources to achieve the organizational goals effectively and efficiently. It consists of human, financial, physical, and information resources.

Question: Is management art or science?

Answer: Management is both art and science. There are several principles to prove management as art and science.

Management as Science

Management behaves as Science in several parameters that contain general facts which explain a phenomenon. Moreover, management principles developed through the scientific method of observation and verification through testing.

The identical features of management and science are:

1. Universally acceptance principles: Management principles can be applied universally.
2. Experimentation & Observation: The principles are based on logics.
3. Cause & Effect Relationship: It can have “cause and effect” relationship between various variables.
4. Test of Validity & Predictability: The principles can be tested several times.

Management as Art

Management acts as an Art by application of knowledge & skill to trying about desired results. The definition of art is the application of general theoretical principles to attain optimum results.

The identical features of management and art are:

1. Practical Knowledge: There is practical application of theoretical principles.
2. Personal Skill: Each one has its own style of work.
3. Creativity: It is a combination of human & non-human resources to obtain optimum results.
4. Perfection through practice: Application of management principles can train managers to become perfect in their jobs.
5. Goal-Oriented: Accomplishment of desired goals through various resources.
6. Work by effectively: Handle every problem of organization in every environment.

Management as Art & Science

Yes, management indeed beholds the characteristics of both art and science. There is an old saying: “Managers are born”, which is regarded as outdated as a new expression has come into existence: “Managers are Made”. Many management scholars admit that management is the oldest of art and the youngest of science.

Question: Explain forecasting with help of an example?

Answer: Forecasting is a technique used to generate predictions from the past and present data for the future. Everyone uses forecasting according to their requirements. Several businesses use it to set a limit for budgets and anticipated expenses to incur in the future. Forecasting acts as a relevant benchmark for businesses, which need a long-term perspective of operations. Furthermore, investors utilize it to check several events surrounding a company; for example, how much sales would this company make? What are the expansion plans of this company? So, forecasting assists the investor in deciding whether they want to stay invested in the company or not.

Example of forecasting

Forecasting is helpful when a manufacturer decides the appropriate time to purchase raw material for the production team. The manufacturer has two choices in this situation: he can buy the raw material and store it, or buy the raw material when there is an actual requirement of it.

Forecasting has two approaches:

Qualitative Models: These models are for short-term predictions, where the scope of the forecast has a limit. This approach requires precision as it is based on the market with an informed consensus, so it is developed by experts. It assists in generating predictive results for the short-term of companies, products, and services. The main setback of this approach is its reliance on opinion over measurable data.

Qualitative models include:

1. Market Research
2. Delphi Method

Quantitative Models: These models do not include expert opinions; and are used for long term planning, such as months or years. It is majorly used in predicting variables such as sales, gross domestic product, housing prices, and share price, etc.

Quantitative models include:

1. The Indicator Approach
2. Econometric Modelling
3. Time Series

Question: Time Value of Money with example

The time value of money dictates that money received today has more value than money received in the future due to its potential earning capacity. Furthermore, this concept holds that provided money can earn interest; any amount of money is worth more the sooner it is received. In simpler terms, your yesterday money was more valuable than today, and your today money is more valuable than tomorrow.

Quick Fact: The other name of Time Value of Money is Present Discounted Value.

For example, you have two options with you. The first option is to receive Rs 10,000 now and the other option is to receive Rs 10,000 in two years. A rational mind would go with receiving Rs 10,000 now, because it has more value, and you can earn more interest on it by investing it.

Question: Future Value of Money with example

Future Value of Money is a projection of the value of an asset at a particular date. It is based on an assumed rate of growth. It is relevant for investors and financial planners as they are pertinent stakeholders in the company. They want to know the real value of the asset at a specified date. And then make sound investment decisions based on their anticipated requirements. However, inflation can adversely deteriorate the future value of the asset by eroding its value.

For example, the money accumulated in a savings account with a fixed interest rate enables to calculate the future value accurately. However, money invested in share prices with the volatile rate of return can present greater difficulty.

AIMA Online Assignment Financial Management FM12

AIMA Online Assignments

Financial Management FM12

NOTE: The answers are boldly marked.

Question 1:- A financial ratio does the following:                                                              

a)      Relationship between different financial statements of an organization.                              

b)      Compares different items                           

c)       A yardstick used by management to take decisions                         

d)      All of the above                              

Question 2:- ____________ standard of comparison indicates the direction of change for a company over the past few years.   

a)       Time series analysis                                       

b)      Proforma analysis                           

c)       Both of them                                    

d)      None of the above                       

Question 3:- The ratios most useful for short-term creditors are                               

a)       Leverage ratio                                  

b)      Activity ratio                                     

c)       Liquidity ratio                                  

d)      None of the above                       

Question 4:- When we are comparing the financial ratio's of three it companies, we are said to be carrying out a ______________________________ analysis:                             

a)       Time series analysis                                       

b)      Industry analysis                             

c)       Proforma analysis                           

d)      None of the above                       

Question 5:- Fixed assets turnover ratio is a part of analyzing the                             

a)       Efficiency in utilizing assets                                      

b)      Leverage of the company                           

c)       Liquidity of the company                             

d)      Studying the profitability of the company                            

Question 6:- ________________ ratio indicates the no. of days a company can finance its business without receiving cash from outside     

a)       Inventory ratio                                

b)      Interval measure                            

c)       Net working capital                       

d)      Cash ratio                          

Question 7:- The following condition needs to be fulfilled for a company to be considered having a strong financial position:               

a)       A high debt-equity ratio                              

b)      Low proportion of shareholder equity                                  

c)       both the conditions are fulfilled                             

d)      none of them is true                                     

Question 8:- The following companies would be able to face adverse situations like recession favorably:              

a)       A company with low operating expense ratio                                    

b)      A company with low profit margin                          

c)       Both the conditions are favorable                           

d)      None of the conditions are favorable                                   

Question 9:- The following measures the market value of a firms assets to its asset replacement cost:   

a)       DuPont analysis                               

b)      Tobin’s Q                           

c)       Book value to market value ratio                             

d)      Market value to book value ratio                             

Question 10:- The following it true of gross working capital                          

a)       It may be positive or negative                                   

b)      Suggests the extent to which working capital needs to be financed by the permanent sources of funds                                       

c)       Both are correct                              

d)      None are correct                            

Question 11:- Low levels of marketable securities are maintained for financing working capital according to the ___________________ .                          

a)       Restrictive approach                                     

b)      Flexible approach                           

c)       Conservative approach                                

d)      Hedging approach                          

Question 12:- The asset side of a balance sheet flows in the following order:      

a)       Cash, Accounts receivables, inventory, marketable securities, fixed assets.                       

b)      Cash, Accounts receivables, marketable securities, inventory, fixed assets.                       

c)       Cash, marketable securities, Accounts receivables, inventory, fixed assets.                       

d)      Can be arranged in any order.

                               

Question 13:- Accounts receivables are the same as:                      

a)       Sundry debtors                               

b)      Bill receivables                                 

c)       Trade creditor                                  

d)      All mean the same                         

Question 14:- Accounts receivables management is based on the following principal:                     

a)       As liquidity increases the return decreases                                       

b)      Cash is king                       

c)       Too much liquidity prevents bankruptcy                              

d)      All are true                       

Question 15:- Costs incurred in writing off accounts receivables due to non-payment is called                    

a)       Bad debt                            

b)      Bankruptcy cost                              

c)       Opportunity cost                            

d)      Collection cost                                 

Question 16:- The credit term 5/10 net 60 signifies:                         

a)       Credit period 10 days, cash discount 5% cash discount period 60 days                                   

b)      Credit period 60 days, cash discount 10% cash discount period 5 days                                     

c)       Credit period 60 days, cash discount 5% cash discount period 10 days                                     

d)      Credit period 5 days, cash discount 10% cash discount period 60 days

Question 17:- Average collection period is:                          

a)       Credit sales/Account receivables                           

b)      Account receivables/ Sales                         

c)       Receivables period/365                               

d)      365/Receivables period                               

Question 18:- The following statements are true as regards inventory management:                      

a)       Maintaining huge amount of inventories requires huge investments                                     

b)      Efficient inventory management is necessary to avoid unnecessary and inadequate investment                       

c)       Inventory management includes acquisition, storage, disposal of materials                         

d)      All are correct                                  

Question 19:- Inventory term includes:                 

a)       Raw maw material + work-in-progress + finished goods                               

b)      Raw maw material + work-in-progress + machine spare parts                                    

c)       Raw maw material + work-in-progress + Finished goods +machine spare parts                                

d)      Raw maw material + work-in-progress + Finished goods +machine spare parts + tables + chairs                                 

Question 20:- Holding inventory to take advantage of changes in prices and getting quality discounts is regarded as the following motive:                            

a)       Transaction motive                       

b)      Speculative motive                       

c)       Precautionary motive                                   

d)      Financial motive                             

Question 21:- The insurance paid against fire and theft of inventories is regarded as the following cost: 

a)       Carrying cost                                     

b)      Ordering cost                                   

c)       Capital cost                       

d)      Storage cost                                      

Question 22:- The level of inventory at which the inventory cost is minimum is regarded as:        

a)       Order point quantity                                    

b)      Economic order quantity                             

c)       Re-order quantity                          

d)      None of the above                       

Question 23:- One of the oldest technique of inventory control which is generally used to control "C" category inventories is :          

a)       ABC Analysis                                     

b)      VED classification                            

c)       Two-bin technique                       

d)      HML classification                           

Question 24:- Classifying inventory on the basis of their availability is called:        

a)       FSN classification                            

b)      HML classification                           

c)       VED classification                            

d)      SDE classification                           

Question 25:- A fixed quantity of material is ordered whenever the stock level reaches the re-order level in the:                             

a)       Fixed order periodic system                                      

b)      Just in time system                       

c)       Fixed order quantity system                                     

d)      Order cycling system                                     

Question 26:- A disbursement float is:   

a)       The amount not debited                             

b)      The amount not credited                            

c)       Firms available balance                                

d)      Firms book balance                       

Question 27:- The net float of cash management is positive when:                          

a)       The firms disbursement float is more than the collection float                                   

b)      The firms collection float is more than the disbursement float                                

c)       Both the situations are correct                                 

d)      None of the statements are correct                       

Question 28:- The bank already holds Rs. 5000. They write a cheque of Rs. 1000 and deposit a cheque of Rs. 2000. What would be your net float.                              

a)       6000                                     

b)      -6000                                    

c)       1000                                     

d)      -1000                                    

Question 29:- The total delay in case of collection float includes:                               

a)       Mailing time + Processing time                                 

b)      Mailing time + Processing time+ availability time                          

c)       Mailing time + Availability time                                 

d)      Availability time + processing time                          

Question 30:- ___________________ approach is use of more short-term funds warranted by the matching plan.                       

a)       Matching                           

b)      Conservative                                    

c)       Aggressive                         

d)      None of the above

AIMA Assignments of Financial Management (FM12)

AIMA Second Semester Assignments

Financial Management (FM12)

Note :- The answers are boldly marked.

Question 1:- Management of long-term funds involve:

a)    Inventory management                        
b)    Cash Management                        
c)    Working Capital policy                        
d)    None of the above                        


Question 2:- The scope of Financial management covers:

a)    Sources of finance                        
b)    Financing mix                        
c)    How firm should analyze, plan and control its financial affairs.                        
d)    All the above                        


Question 3:- Capital Budgeting is within the scope of:

a)    Financing decision                        
b)    Investment decision                        
c)    Dividend decision                        
d)    All the above                        


Question 4:- The 6 A's of financial management are:
a)    Anticipation, announcement, allocation, administering, analysis and accounting                        
b)    Anticipation, announcement, ammunition, administering, analysis, and accounting                    
c)    Anticipation, acquiring, allocation, administering, analysis and accounting                        
d)    Anticipation, announcement, allocation, administering, analysis and affirmation                        


Question 5:- The activity concerned with planning, raising, controlling and administration of funds used in the business:

a)    Financing decision                        
b)    Corporate finance                        
c)    Investment decision                        
d)    Managerial Finance                        


Question 6:- What would be the future value of Rs. 6000 compounded annually for three years at 10%:
a)    Rs. 7986                        
b)    Rs. 6600                        
c)    Rs. 7436                        
d)    None of the above                        


Question 7:- Mr. Ramesh deposited Rs. 2000 at the end of every year for 5 years in his saving account, paying an interest of 5% interest compounded annually. Determine the sum of money he will have at the end of the 5th year.

a)    10536                        
b)    12650                        
c)    11054                        
d)    None of the above                        


Question 8:- The following roles are performed by the treasurer:

a)    Portfolio management                        
b)    Tax management                        
c)    Internal audit                        
d)    all the above                        


Question 9:- The conflict of interest between the agent and the owner is known as:

a)    Difference of opinion                        
b)    Shareholder conflict                        
c)    Agency conflict                        
d)    None of the above                        


Question 10:- The term discounting in the concept of time value of money is:

a)    The technique of finding the present value                        
b)    The technique of finding the future value                        
c)    The percentage used to factor the cash flows                        
d)    Applying the discount rate on the cash flows                        


Question 11:- A stream of payment having no maturity date would be called:

a)    Cash flow                        
b)    Perpetuity                        
c)    Annuity                        
d)    Terminal value                        


Question 12:- AIMA wishes to institute a scholarship of Rs. 15000 for exceptional students. We wish to know the present value which would yield the said amount in perpetuity, discounted at 9%

a)    166,667.00                        
b)    150,000.00                        
c)    120,000.00                        
d)    1,800,000.00                        


Question 13:- Q.No.13-15 A debenture of Rs. 2000 is issued by a company for a period of five years. The rate of interest payable by the company on the debenture is 7% p.a. The appropriate capitalization rate is 10%. The present value of the interest is:

a)    303.03                        
b)    530.74                        
c)    140                        
d)    86.94                        


Question 14:- The present value of the principal at the end of 5 years is:

a)    1800                        
b)    1400                        
c)    1242                        
d)    1772                        


Question 15:- The value of the debenture should be:

a)    1772.74                        
b)    1087.03                        
c)    1382                        
d)    2302                        


Question 16:- The following approached used to value equity:
a)    Dividend capitalization approach                        
b)    Earning capitalization approach                        
c)    Both are used                        
d)    None are used                        


Question 17:- A firm deposits Rs. 50 lakhs at the end of each year for 4 years at the interest rate of 16% compounded quarterly. What is the compound value at the end of the 4th year:
a)    9,365,000.00                        
b)    13,990,000.00                        
c)    9,465,000.00                        
d)    9,565,000.00                        


Question 18:- The cost of capital is:
a)    Sum total of all sources of capital                        
b)    Sum total of total capital used by the company divided by the no. of sources                        
c)    Weighted average of the various sources of capital.                        
d)    Weighted average of the various sources of capital used by the company.                        


Question 19:- The cost of capital is used in:
a)    Determination of the capital structure                        
b)    Capital budgeting decision                        
c)    Financial performance appraisal                        
d)    all the above                        


Question 20:- The traditional approach for determining capital structure is:

a)    The cost of equity is more important than the cost of debt                        
b)    The cost of debt needs to be given more weight than the cost of equity.                        
c)    The cost of capital is constant and independent of the level of financing.                        
d)    The cost of capital is varying and dependent on capital structure                        


Question 21:- A firm employs debt and equity in equal proportions having cost of equity and debt as 14% and 6% respectively. What is the WACC:
a)    12%                        
b)    8%                        
c)    10%                        
d)    none of the above                        


Question 22:- The cost of raising one additional cost of capital is called:
a)    spot cost                        
b)    Marginal cost of capital                        
c)    Specific cost                        
d)    Future cost                        


Question 23:- The discount rate that equates the present value of the cash inflow with the present value of cash outflow:
a)    Average cost                        
b)    Book cost                        
c)    Implicit cost                        
d)    Internal rate of return                        


Question 24:- For evaluating a project we can use the WACC only if:
a)    The business risk and the project risk are the same.                        
b)    The new project does not change the capital structure                        
c)    Both conditions are adhered to                        
d)    WACC cannot be used to evaluate a project.                        


Question 25:- The following statements are true:
a)    The issue of additional equity shares is a source of debt                        
b)    The retained earning is a source of equity                        
c)    Both statements are true                        
d)    None of the statements are true.                        


Question 26:- If the risk free rate is 10%, the expected return on market portfolio is 18% the cost of equity capital will be 18% when the beta is:
a)    0                        
b)    1.5                        
c)    0.5                        
d)    1                        


Question 27:- The following is true as regards risk-free rate:
a) Estimated as the difference between the average return on the market and the average rate of return                   
b) Calculated by regressing the monthly returns on the stock over monthly returns on the stock over the monthly returns of the market
                   
c) It is estimated as the yield on a long-term government bond having a maturity of 10 years or more.          
        
d)    All statements are true.                        


Question 28:- The realized yield approach assumes the following:
a)    Market price of equity shares changes at all times                        
b)    A firms risk is changing at all times                        
c)    Investors have an opportunity cost                        
d)    none of the above statement is true                        


Question 29:- The Weighted average cost of capital is influenced by :
a)    Capital structure                        
b)    Dividend policy                        
c)    Tax levels                        
d)    All the above                        


Question 30:- A company has 6 lakhs outstanding shares of Rs. 10 each. On a reverse split of 2:4 the following will hold true:

a)    The outstanding share will be 6 and value per share will be 40                        
b)    The outstanding share will be 3 and value per share will be 40                        
c)    The outstanding share will be 6 and value per share will be 10                        
d)    The outstanding share will be 3 and value per share will be 10