Internal Assignment No.

1
MBA/DFM– 106

International finance Management

Q. 1. (i)What do you understand by balance of payment?

Ans: A statement that summarizes an economy’s transactions with the rest of the world for a
specified time period. The balance of payments, also known as balance of international
payments, encompasses all transactions between a country’s residents and its nonresidents
involving goods, services and income; financial claims on and liabilities to the rest of the world;
and transfers such as gifts. The balance of payments classifies these transactions in two
accounts– the current account and the capital account. The current account includes transactions
in goods, services, investment income and current transfers, while the capital account mainly
includes transactions in financial instruments. An economy’s balance of payments transactions
and international investment position (IIP) together constitute its set of international accounts.
Q. 1. (ii) Define any five factors which influence exchange rate.
Ans: 1. Inflation
2. Interest Rates
3. Speculation
4. Change in competitiveness
5. Trend of export and import
Q. 1. (iii) Give five differences between centralized versus decentralized cash management.
Ans. Facilitates introduction of suitable marketing mix: Market segmentation enables a producer
to understand the needs of consumers, their behavior and expectations as information is collected
segment-wise in an accurate manner. Such information is purposefully usable. Decisions
regarding Four Ps based on such information are always effective and beneficial to consumers
and the producers
.1. Facilitates introduction of effective product strategy
2. Facilitates the selection of promising markets
3. Facilitates exploitation of better marketing opportunities
4. Facilitates selection of proper marketing programme-
5. Facilitates effective advertising:
6. Provides special benefits to small firms:
Q.1. (iv) Give five difference between forward and future contract?
Ans. There is a wide range of fixed income derivative products: options, swaps, futures contracts
as well as forward contracts.
The most widely traded kinds are;
1. Credit default swaps Interest rate swaps
2. Inflation swaps
3. Bond futures on 2/10/30-year government bonds
4. Interest rate futures on 90-day interbank interest rates
5. Forward rate agreements

Q.1.(v) what do you understand by translation espouser?

Ans. Strategy implementation is the translation of chosen strategy into organisational action so
as to achieve strategic goals and objectives. Strategy implementation is also defined as the
manner in which an organisation should develop, utilize, and amalgamate organisational
structure, control systems, and culture to follow strategies that lead to competitive advantage and
a better performance.
Q.2. Explain the process of issuing ADR and GDR?
Ans. .1. Global Depository Receipts (GDR)/American Deposit Receipts (ADR)/Foreign
Currency Convertible Bonds (FCCB): Foreign Investment through GDRs/ADRs, Foreign
Currency Convertible Bonds (FCCBs) is treated as Foreign Direct Investment. Indian companies
are allowed to raise equity capital in the international market through the issue of
GDR/ADRs/FCCBs. These are not subject to any ceilings on investment. An applicant company
seeking Government’s approval in this regard should have a consistent track record for good
performance (financial or otherwise) for a minimum period of 3 years. This condition can be
relaxed for infrastructure projects such as power generation, telecommunication, petroleum
exploration and refining, ports, airports and roads.
2. There is no restriction on the number of GDRs/ADRs/FCCBs to be floated by a company or a
group of companies in a financial year. A company engaged in the manufacture of items covered
under Automatic Route, whose direct foreign investment after a proposed GDR/ADR/FCCBs
issue is likely to exceed the percentage limits under the automatic route, or which is
implementing a project falling under Government approval route, would need to obtain prior
Government clearance through FIPB before seeking final approval from the Ministry of Finance.
There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on
investment in real estate and stock markets. The FCCB issue proceeds need to conform to
external commercial borrowing end use requirements; in addition, 25 % of the FCCB proceeds
can be used for general corporate restructuring.
Q.4. Discuss financial structure of foreign subsidiaries of MNCs.
Ans. The diversity of organisations in an organisational field stems from such company specific
properties as their sizes, visible and tacit assets, collaborative histories, ownership forms,
corporate social capital networks, product ranges and diversification, market shares, and market
penetration through distribution channels. Given such diversity, propensities to participate in
strategic alliances should vary across firms operating within the same organisational field.
Corporate social capital influences alliance creation, as new ties build on existing interfere
relations. Alliance formation processes are also shaped by a dominant corporation. Dicken
suggested that MNCs, with their complex headquarter-subsidiary relationships, have established
new foundations for business networks and multiform alliances. Therefore, the subunit
coordination taking place inside an MNC provides a convenient blueprint for coordinating
complex alliance networks. This dynamic is one reason why alliance analysts can never resolve
the debate over control and resource allocation processes. Foreign investors facilitate local
companies‘integration into global production and distribution chains, creating business
opportunities for local firms

Internal Assignment No. 2

MBA/DFM– 106

International finance Management

Q.1. (i) what do you understand by international finance management?
Ans. The field of international marketing is related to other fields of study. In its broadest terms,
international marketing is a subset of international business, which is defined as the performance
of all business functions across national boundaries. International business includes all functional
areas such as international production, international financial management, and international
marketing.
Q.1.(ii) Explain the concept of Interest Rate parity theorems?
Ans. Interest rate parity is a theory in which the interest rate differential between two countries is
equal to the differential between the forward exchange rate and the spot exchange rate. Interest
rate parity plays an essential role in foreign exchange markets, connecting interest rates, spot
exchange rates and foreign exchange rates. A theory stating that the difference between interest
rates in two countries is the difference between the foreign exchange rate and the spot
rate of their two currencies. According to this theory, when one makes two fixed,investments in t
wo different currencies, the return on both investments are the same even though interest rates m
aybe different in absolute terms.
Q1.(iii) Do you think cash management system effect the borrowing decisions of firm?
Ans. Controlled Disbursement Account provides check clearing information the day of posting
giving you a sneak preview of the day‘s cash position. Checks are drawn on a separate routing
and transit number. Controlled Disbursement intercepts the check information before posting and
delivers it via Business Online by 11 a.m. This early sneak peek allows you to calculate your
cash position for borrowing and/or investment opportunities.
Q1.(iv) Explain the concept of Arbitrage in foreign exchange market?
Ans. India’s merchandise trade deficit would hard hit due to local currency appreciation,
anticipation of higher crude imports and non-crude oil imports and VMW expects, Rupee will
appreciate to INR 42 for a US Dollar. In this situation, RBI would intervene into the foreign
exchange market as a arbitrator (since INR is a managed float type of currency) to curb
appreciation and maintain uniformity.
Q.1. (v) Explain the concept of Internal and external techniques of risk.
Ans. Management control is implemented by a number of people both internal and external to
the organization. Each of them plays a different role and has different responsibilities toward the
effective implementation of a management control system. The entities internal to the
organization are the management, the board of directors, the internal auditors, and most of the
employees; the entities external to the organization include external auditors, regulatory bodies,
customers, suppliers, and financial analysts.
Q.3. Explain the concept of international monetary system?
Ans. International monetary systems are sets of internationally agreed rules, conventions and
supporting institutions that facilitate international trade, cross border investment and generally
the reallocation of capital between nation states. They provide means of payment acceptable
buyers and sellers of different nationality, including deferred payment. To operate successfully,
they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and
to provide means by which global imbalances can be corrected. The systems can grow
organically as the collective result of numerous individual agreements between international
economic factors spread over several decades. Alternatively, they can arise from a single
architectural vision as happened at Bretton Woods in 1944.
Q.4. Explain the techniques for covering the foreign exchange risk?
Ans. There are many techniques for covering the foreign exchange risk;
1. Devaluation: The first initiative towards globalization had been taken the moment there was
an announcement of devaluating the Indian currency by a hoping 18-19% against all the
major global currencies. This was a major initiative in the international foreign exchange
arena. The Balance of payment crisis could also be resolved by this measure.
2. Disinvestment: The core elements of globalization are privatization and liberalization. Under
the privatization scheme, bulk of the public sector undertakings have been/ and are still
being sold to the private sector. Thus the concept of PPP (public private partnership) came
up.
3. Allowing Foreign Direct Investment (FDI): Allowing FDI inflow is a major step of
globalization. The foreign investment regime has been quite transparent and thus the
economy is getting boosted up. Various sectors were opened up for liberalizing the FDI
regime.
 Internal Assignment No. 1
MBA/PGDM– 107

Working Capital Management

Q.1. (i) Differentiate between Gross working capital and net working capital.
Ans. Working capital is the liquidity of a company and has two definitions namely gross
working capital and net working capital.
1. Gross working capital is the total of all current assets and does not hold much
significance for the investors.
2. Net working capital is the excess of current assets over current liabilities of a company
which is why it is an important indicator of company’s financial health.
3. Gross working capital include both of short term investments (current assets) and short
term liabilities (current liabilities) .
4. Net working capital is the difference between of the above mentioned and should be
positive which means that the current ratio is mare than1.
Q.1.(ii) Name of factors determining working capital.
Ans.1. Nature of the Industry / Business
2. Seasonality of Industry and Production Policy
3 Production Cycle Time:
4.Credit Policy:
5. Raw Material Short Supply:
6. growth and expansion
7. Competition
Q.1.(iii) on what factors trade credits depends?
Ans. The simple definition of trade credit is when a supplier of goods or services provides credit
to a customer, allowing the customer to pay for the goods or services at a later date. Yet trade
credit is more complex than its definition implies. There are multiple functions of trade credit. A
business must also consider the positive and negative costs of trade credit and its potential
financial impact. There is also more than one type of trade credit. Here is a brief introduction to
what trade credit is, and what it means to business.
Q.1.(iv) Explain the meaning of Commercial paper.
Ans. Commercial Paper is one of the non-bank sources of working capital finance. It is a money
market instrument, unlike debentures which are capital market instruments. Corporate
Borrowers, especially the large and financially sound, can diversify their short term borrowing
by the issue of Commercial Paper.
Q.1.(v) discuss the factors determining the investment in inventory.
Ans. A significant example concerning inventory management is allocation of responsibilities
and authorities. Inventory control problems can easily arise when for instance nobody is in the
organization is responsible for the inventory or the responsible person has insufficient authorities
to carry out the task.

Q.2. what do you understand by working capital? Explain the concept and determinants of
working capital.
Ans. A managerial accounting strategy focusing on maintaining efficient levels of both
components of working capital, current assets and current liabilities, in respect to each other.
Working capital management ensures a company has sufficient cash flow in order to meet its
short-term debt obligations and operating expenses. Implementing an effective working capital
management system is an excellent way for many companies to improve their earnings. The two
main aspects of working capital management are ratio analysis and management of individual
components of working capital. A few key performance ratios of a working capital management
system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis
will lead management to identify areas of focus such as inventory management, cash
management, accounts receivable and payable management.
1. Working Capital is the amount of capital that a business has available to meet the day-to-
day cash requirements of its operations
2. Working Capital is the difference between resources in cash or readily convertible into
cash (Current Assets) and organizational commitments for which cash will soon be
required (Current Liabilities)
3. It refers to the amount of current assets that exceeds current liabilities
4. Working capital refers to that part of the firm‘s capital, which is required for financing
short-term or current assets such as cash, marketable securities, debtors, and inventories.
Working Capital is also known as Revolving or Circulating Capital or Short-Term Capital.
Q.3. what is factoring? Discuss the types and benefits of factoring.
Ans. Factoring is a financial option for the management of receivables. In simple definition it is
the conversion of credit sales into cash. In factoring, a financial institution (factor) buys the
accounts receivable of a company (Client) and pays up to 80 %( rarely up to 90%) of the amount
immediately on agreement. Factoring company pays the remaining amount (Balance 20%-
finance cost-operating cost) to the client when the customer pays the debt.
Types of Factoring
1. Disclosed and Undisclosed
2. Recourse and Non-recourse
The benefits of factoring
The factoring services consist of four main functions:
1. Finance for the supplier; the factoring company pays the client the amount necessary
for his working capital, in exchange for his invoices.
2. Maintenance of the receivables account; the factoring company manages the trade
debts of the client, keeping the sales accounts ledgers and sending out the invoices.
3. Collection of receivables; the factoring company collects the payments due from the
debtors of the client.
4. Protection against the default in payment by debtors; the factoring company carries
the risk of any bad debt (if the debtor fails to pay

Internal Assignment No. 2

MBA/PGDM– 107

Working Capital Management

Q.1. (i) how would you estimate the recorder level?
Ans. Reorder level (or reorder point) is the inventory level at which a company would place a
new order or start a new manufacturing run.
Reorder Level = Lead Time in Days × Daily Average Usage
Lead time is the time it takes the supplier or the manufacturing process to provide the ordered
units.
Daily average usage is the number of units used each day.
If a business is holding a safety stock to act as buffer if daily usage accelerates the reorder level
would increase by the level of safety stock.

Reorder Level = Lead Time in Days × Daily Average Usage + Safety Stock
Q.1.(ii) What is the objective of management of receivables?
Ans. The objective of receivables management is to promote sales and profit until that is reached
where the return on investment in further finding of receivable is less than the cost of funds
raised to finance that additional credit (i.e., cost of capital). The primary aim of receivables
management vet in minimizing the value of the firm while maintaining a reasonable balance
between risk (in the form of liquidity) and profitability. The main purpose of maintain
receivables is not sales maximization not is for minimization of risk involved by way of bad
debts.
Q.1.(iii) How credit analysis is done?
Ans. The goal of modern credit management is to evaluate customers ‘creditworthiness as
precisely as possible and provide early warning of credit defaults. This requires software
solutions which provide comprehensive support for the demands and core processes of credit and
receivables management.
Q.1. (iv) what are the function of cash management?
Ans. Cash management is concerned with minimizing unproductive cash balances, investing
temporarily excess cash advantageously and to make the best possible arrangements for meeting
planned and unexpected demands on the firm‘s cash. Cash Management must aim to reduce the
required level of cash but minimize the risk of being unable to discharge claims against the
company as they arise. All these aims and motives of cash management largely depend upon the
efficient and effective functioning of cash management. Cash management functions can be
studied under five heads, namely, cash planning, managing cash flow, controlling cash flow,
optimizing the cash level and investing idle cash.
Q.1.(v) Explain the motives for holding cash.
Ans. Every business transaction whether carried on credit or on cash basis ultimately results in
either cash inflow or cash outflows. The pivotal point in present day financial management is to
maximize cash generation and to minimize cash outflows in relation to the cash inflows.
Keynes postulated three motives for holding cash:-
1. Transaction Motive
2. Precautionary Motive
3. Speculative Motive.

To which one more motive for holding cash has been added:-
Compensation Motive

Q.2 ABC Ltd. manufactures a special product ‘X’. The following particulars collected for
the year2011:
a. Monthly demands of ‘X’ 1000 units.
b. Cost of placing an order Rs. 100.
c. Annual carrying cost per unit Rs. 15.
d. Normal usages 50 units per week; minimum usage 25units per week and maximum usage75
Units per week.
e. Reorder period 4 to 6 weeks.
Compute:
i. Economic Order Quantity.
ii. Reorder level.
iii. Minimum level.
iv. Maximum level.

Q.3 From the following information extracted from the books of a manufacturing
company, computes the operating cycle in days and required working capital
Period covered 365 days
Average period allowed by suppliers 16 days Rs.
Average debtors outstanding 24000
Raw Material Consumption 255500
Total Production Cost 474500
Total cost of sales 511000
Sales for the year (all credit) 730000
Value of average stock maintained:
Work in progress 18200
Finished Goods 14000
Raw Material 21000
Expected cash balance 20000

Internal Assignment No. 1

MBA/PGDM– 108
Literary Theory

Q. 1.(i) What is the function of a Cost Centre?

Ans: A cost center in a management accounting system analyzes the company's budgets. A cost
center is responsible for examining budgets to Find problematic areas and suggest
improvements. Many medium-sized and large organizations have a cost center as part of their
management accounting system. Corporations, as well as nonprofit organizations, use cost
centers to keep track of expenses. A cost centers a unit within a larger system that is responsible
for a particular set of actives that benefit the organization. Keeping close track of the expenses of
operating such a cost center allow the organization to control total costs, allocate resources more
strategically and calculate profitability on a product or department basis.
Q.1.(ii)What is the Concept of Motivation? How does it affect individual behavior and
performance?
Ans: The term motivation is derived from the word ‘motive”. The word ‘motive’ as a noun
means an objective, as a verb this word means moving into action. Therefore, motives are forces
which induce people to act in a way, so as to ensure the fulfillment of a particular human need at
a time. Behind every human action there is a motive. Therefore, management must provide
motives to people to make them work for the organization. Motivation may be defined as a
planned managerial process, which stimulates people to work to the best of their capabilities, by
providing them with motives, which are based on their unfulfilled needs. Your disposition, mood
and feelings impact everything from your ability to make effective decisions to the level of your
creativity and ability to work well with others. Inconsiderate behaviors such as rudeness and
gossiping also interrupt the smooth flow of the workplace. Your behavior even may affect
whether you keep your job. Transferring feelings to work place behaviors affects your work
performance.
Q.1.(iii) How divisional performance is measured in an organization?
Ans: Our purpose in this paper is to examine divisional performance measurement methods and
related aspects of the rules of the game that govern the behavior of managers. Performance
measurement is one of the critical factors that determine how individuals in an organization
behave. It is one aspect of what we call the organizational rules of the game, which consist of
(1) the performance measurement and evaluation system,
(2) the reward and punishment system, and
(3) the system for partitioning decision rights among individuals in an organization.

Q.1.(iv) Discuss the importance of internal audit.

Ans. Internal audit is another control technique used by modem management. Internal audit is
conducted by an internal auditor who is an employee of the organization. He makes an
independent appraisal of financial and other operations. In addition, he appraises company's
policies, plans, and management performance. He pinpoints defects in the policies or plans and
gives suggestions for eliminating the defects. As internal audit is conducted regularly, it keeps
the employees always alert.
Q.1.(v) Discuss the advantage of participative management.
Ans. One of the main characteristics of human resource management practice is the focus on the
employee as a valuable asset. Today, the employee is no longer viewed as collective and
dispensable but is increasingly viewed as an individual with proactive inputs to the production
processes, the source of the organization‘s competitive advantage. In line with this view,
emphasis now has been placed on raising commitment in employees through their involvement.
Q.2. what is the concept of management control? Also discuss the scope and importance of
implementing adequate management control.
Ans. Management control is the process of evaluating, monitoring and controlling the various
sub-units of the organization so that there is effective and efficient allocation and utilization of
resources in achieving the predetermine goals. Thus, the focus of management control is on the
managers of organizational sub-units and hence its focus is on line managers responsible for the
performance of their departments. Management control therefore, is the control exercised by the
management over the managers. Who controls the managers and what is the process involved in
controlling them? Management control is exercised by evaluating the performance of cache
responsibility center, against planned performance. Actual and planned performance are
compared regular intervals so as to identify resource gaps and, if need be, provide managers with
more resources or transfer resources from on organizational unto another. The end-ofthe-year
review may be too late to take corrective action
The whole purpose of management control is to decide on connective action if there are
substantial deviations from the planned performances. The management control system also
provides mechanisms for proper coordination and integration of various organizational sub-units
by inter relating the tasks being performed and deciding on the resource allocation. In the process
of management control conflicts are inherent between managers for resource mobilization,
allocation arid snatching. Thus, there is intense interaction among managers.

Q.5. Accounting reports are a matter of necessity for the Management”. Elaborate and
explain the different types of reports that are used for the internal management of an
enterprise
Ans. Management reporting system, in general, may be divided into three segments, namely,
statutory reports, routine control and accounting reports and management control reports.
Statutory reports include maintenance of statutory records and submission of reports and returns
to various authorities as directed by law.
Routine control and accounting reports include routine stock records; sales records, ledgers, bank
and cash position statements, expenses statements, etc., which are needed for general control and
for accounting and auditing purpose.
Accounting reports are required to be made in addition to management control reports. He it is
advisable to evolve an integrated reporting system, which can serve all the three objectives. Such
a system will considerably reduce the number of reports, the efforts gone in to collect and to
compile data to make reports and studying the reports by the recipients
 Internal Assignment No. 2
MBA/PGDM– 108
Literary Theory

Q. 1.(i). Define the scope of Management Control.

Ans. Management controls, in the broadest sense, include the plan of organization, methods and
procedures adopted by management to ensure that its goals are met. Management controls
include processes for planning, organizing, directing, and controlling program operations. A
subset of management controls are the internal controls used to assure that there is prevention or
timely detection of unauthorized acquisition, use, or disposition of the entity's assets. MCS as
"the formal, information-based routines and procedures managers use to maintain or alter
patterns in organizational activities".
Q. 1.(ii). Why effective control system is required in Management?
Ans. Control techniques provide managers with the type and amount of information they need to
measure and monitor performance. The information from various controls must be tailored to a
specific management level, department, unit, or operation. To ensure complete and consistent
information, organizations often use standardized documents such as financial, status, and
project reports. Each area within an organization, however, uses its own specific control
techniques, described in the following sections. A variety of tools and techniques has been used
over the years to help managers control the activities in their organizations. We may classify
these techniques into old and new.
Q. 1.(iii)..Differentiate between PERT and CPM technique.
Ans. PERT and CPM the two major techniques under this heading are PERT (Program
Evaluation and Review Technique) and CPM (Critical Path Method). Both techniques were
developed independently, although virtually at the same time, around 1957-58. PERT was first
developed for the US Navy in connection with the Polaris weapons system and is credited with
reducing the completion time of the program by two years. CPM was developed jointly by Du
Pont and Remington Rand of USA in order to facilitate the control of large, complex industrial
projects.
Q. 1.(iv). What do you mean by Performance Budgeting?
Ans. Performance budget may be defined as a budget based on functions, activities and projects.
Performance Budgeting may be described as a budgeting system. Where under input costs are
related to the end results, are related to the performance. According to the national Institute of
Bank Management, Bombay, Performance Budgeting is the process of analyzing, identifying,
simplifying and crystallizing specific performance objectives of a job to be completed over a
period, in the framework of the organizational objectives, the purpose and objectives of the job.
It involves evaluation of the performance of the organization in the context of both specific as
well as overall objectives of the organization.
Q. 1.(v). What is meant by ‘Transfer Pricing’?
Ans. Transfer prices are the amounts charged by one sub-unit of an organization for a product or
service that it supplies to another sub-unit of the same organization. Most often, the term is
associated with materials, parts, or finished, goods. The transfer price serves two roles. First, as a
price; it is a guide to local decision-making; it helps the producing division decide how much of
the product it wants to sell, and, for the purchasing division, how much to acquire. Second, the
prices and subsequent profit measurement help to the management to evaluate the profit centres
as separate entities.

Q.6 Prepare a Cash Budget from April to June for ABC Co. Ltd.
With the help of following information :
Month Sales (Rs.) Purchases (Rs.) Wages(Rs.)
February 180000 124000 12000
March 192000 144000 14000
April 108000 243000 11000
May 174000 246000 10000
June 126000 26800 15000
b. 50% of the credit sales are realized in the following month sales and remaining 50% sales for
in The second following month.
c. Creditors are paid in the following month of Purchase.
d. Cash at Bank as on 1st April Rs. 25000.

Q.7 Write a note on:

(i). Organization Structure
Ans. It is absolutely essential to know the organizational structure of a unit for which the MIS
(management information system) is being evolved. The designations of the persons or positions,
the responsibilities at each level and the reporting structure must be clearly understood. The
management Control information need at each level varies and hence the need to study the
structure. At the highest management level overall review of divisional departmental operations
will be sufficient, whereas at lower levels detailed information of each expense account, each
product on customers may be required.
(ii.) Strategic Planning
Ans. Organization‘s principals have extensive experience assisting firms with the strategic
planning process. The organizations follow a five step process working with clients.
1. Acquiring an initial understanding of the current strategy, business plans, markets and
management team through a series of documents, interviews and working sessions. The
focus is to understand how the corporation is focused and how each operating unit guides
and manages itself.
2. Developing an assessment of the current information that the corporation has to work
with. The focus is to establish a proper strategic planning agenda.
3. Identifying the strategy team members and outside resources that should be involved to
conduct and effective planning session

Internal Assignment No. 1

MBA/PGDM– 111

FUNDAMENTAL OF INFORMATION TECHNOLOGY

Q. 1. (i) Differentiate between mini computers and mainframe computers. Give suitable
examples.
Ans- A mainframe computer is a large, powerful computer that handles the processing for many
users simultaneously (up to several hundred users). Users connect to the mainframe using
terminals and submit their tasks for processing by the mainframe.
Mini Computer A minicomputer is a multi-user computer that is less powerful than a mainframe.
A minicomputer is a multiprocessing system capable of supporting from 4 to about 200 users
simultaneously. Difference between Micro Computer, Mini Computer and Mainframe Micro
Computer The minicomputer first hit the market in 1960 with Digital
Q. 1. (ii) How RAM is different from RAM?
Ans- There is one major difference between a ROM and a RAM chip. A ROM chip is non-
volatile storage and does not require a constant source of power to retain information stored on
it. When power is lost or turned off, a ROM chip will keep the information stored on it. In
contrast, a RAM chip is volatile and requires a constant source of power to retain information.
When power is lost or turned off, a RAM chip will lose the information stored on it.
Q. 1. (iii) What are the characteristics of good programming language?
Ans- Simplicity : A good programming language must be simple and easy to learn and use.
Naturalness:- A good language should be natural for the application area, for which it has been
designed.
Abstraction:- Abstraction means the ability to define and then use complicated structures or
operations in ways that allow many of the details to be ignored.
Efficiency :- Programs written in a good programming language are efficiently translated into
machine code, are efficiently executed, and acquire as little space in the memory as possible.
Q. 1. (iv) What do you understand by Protocols? Give examples.
Ans- Protocols exist at several levels in a telecommunication connection. For example, In the
standard model known as Open Systems Interconnection (OSI), there are one or more protocols
at each layer in the telecommunication exchange that both ends of the exchange must recognize
and observe.
The TCP/IP Internet protocols, a common example, consist of:
Transmission Control Protocol (TCP), which uses a set of rules to exchange messages with other
Internet points at the information packet level
Internet Protocol (IP), which uses a set of rules to send and receive messages at the Internet
address level
Additional protocols that include the Hypertext Transfer Protocol (HTTP) and File Transfer
Protocol (FTP), each with defined sets of rules to use with corresponding programs elsewhere on
the Internet

Q. 1. (v) What are Digital Signatures?

Ans- A digital signature (not to be confused with a digital certificate) is a mathematical
technique used to validate the authenticity and integrity of a message, software or digital
document
Q. 2. What are Topologies? Discuss five types of topologies with suitable diagrams.
Ans-The physical topology of a network refers to the configuration of cables, computers, and
other peripherals. Physical topology should not be confused with logical topology which is the
method used to pass information between workstations. Logical topology was discussed in the
Protocol chapter.
Main Types of Network Topologies In networking, the term "topology" refers to the layout of
connected devices on a network. This article introduces the standard topologies of computer
networking.
One can think of a topology as a network's virtual shape or structure. This shape does not
necessarily correspond to the actual physical layout of the devices on the network. For example,
the computers on a home LAN may be arranged in a circle in a family room, but it would be
highly unlikely to find an actual ring topology there.
Network topologies are categorized into the following basic types:
1. Star Topology
2. Ring Topology
3. Bus Topology
4. Tree Topology
5. Mesh Topology
6. Hybrid Topology

More complex networks can be built as hybrids of two or more of the above basic topologies.
Q. 4. ‘Internet is widely used in business and research’. Justify the statement with
suitable examples.
Ans- The Internet is the global system of interconnected computer networks that use the Internet
protocol suite (TCP/IP) to link billions of devices worldwide. It is a network of networks that
consists of millions of private, public, academic, business, and government networks of local to
global scope, linked by a broad array of electronic, wireless, and optical networking
technologies. The Internet carries an extensive range of information resources and services, such
as the inter-linked hypertext documents and applications of the World Wide
Web(WWW), electronic mail, telephony, and peer-to-peer networks for file sharing.
The origins of the Internet date back to research commissioned by the United States federal
government in the 1960s to build robust, fault-tolerant communication via computer
networks.[1] The primary precursor network, the ARPANET, initially served as a backbone for
interconnection of regional academic and military networks in the 1980s. The funding of
the National Science Foundation Network as a new backbone in the 1980s, as well as private
funding for other commercial extensions, led to worldwide participation in the development of
new networking technologies, and the merger of many networks.[2] The linking of commercial
networks and enterprises by the early 1990s marks the beginning of the transition to the modern
Internet,[3] and generated a sustained exponential growth as generations of institutional, personal,
and mobile computers were connected to the network.
 Internal Assignment No. 2
MBA/PGDM– 111
FUNDAMENTAL OF INFORMATION TECHNOLOGY

Q. 1. (i) Mention the characteristics of Secondary storage devices.

Ans- Other types of secondary storage devices sometimes found in a business setting include a
storage area network array, network-attached storage and object storage devices. Extra storage
and backup space is crucial to relieve the demand on any existing primary storage. So much data
is typically stored at the corporate level that secondary storage is no longer optional. Older data
can be easily stored in secondary storage and still be accessed easily whenever the need arises.

Q. 1. (ii) What is data transmission mode?

Ans- The way in which data is transmitted from one place to another is called data transmission
mode. It is also called the data communication mode. It is indicates the direction of flow of
information. Sometimes, data transmission modes are also called directional modes.

Q. 1. (iii) What do you understand by computer network? Give examples of peripheral

devices.
Ans- A computer network is a set of connected computers. Computers on a network are called
nodes. The connection between computers can be done via cabling, most commonly the Ethernet
cable, or wirelessly through radio waves. Connected computers can share resources, like access
to the Internet, printers, file servers, and others. A network is a multipurpose connection, which
allows a single computer to do more.
Say you just bought a new computer and, with excitement, you unpack it and set it all up. The
first thing you want to do is print out some photographs of the last family party. So it's time to
head back to the store to buy a printer. A printer is known as a peripheral device.
Q. 1. (iv) What is multiplexing?
Ans- Networks use multiplexing for two reasons: To make it possible for any network device to
talk to any other network device without having to dedicate a connection for each pair.
This requires shared media; To make a scarce or expensive resource stretch further -- e.g., to
send many signals down each cable or fiber strand running between major metropolitan areas, or
across one satellite uplink.

Q. 1. (v) What do you understand by data backup?

Ans- Backup is the activity of copying files or databases so that they will be preserved in case of
equipment failure or other catastrophe. Backup is usually a routine part of the operation of large
businesses with mainframes as well as the administrators of smaller business computers. For
personal computer users, backup is also necessary but often neglected. The retrieval of files you
backed up is called restoring them.

Q. 2. Write a short note on desktop publishing softwares.

Ans- Desktop publishing software is a tool for graphic designers and non-designers to
create visual communications (brochures, business cards, greeting cards, Web pages, posters,
etc.) for professional or desktop printing as well as for online or on-screen electronic publishing.
Programs such as Adobe InDesign, Microsoft Publisher, QuarkXPress, Serif Page Plus, and
Scribus are examples of desktop publishing software.
Some of these are used more by graphic designers. Others are used more by office workers,
teachers, students, small business owners, and non-designers.
Q. 3. Discuss in detail the difference between system software and application software.
Ans-Difference between system software and application software
1. System software gets installed when the operating system is installed on the computer
while application software is installed according to the requirements of the user.
2. System software includes programs such as compilers, debuggers, drivers, assemblers
while application software includes media players, word processors, and spreadsheet
programs.
3. Generally, users do not interact with system software as it works in the background
whereas users interact with application software while doing different activities.
4. A computer may not require more than one type of system software while there may be a
number of application software programs installed on the computer at the same time.
5. System software can run independently of the application software while application
software cannot run without the presence of the system software.

Internal Assignment No. 1

MBA - 110
Indian Ethos & Management
Q. 1. (1) Discuss the nature of Business ethics.
Ans- Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that
examines ethical principles and moral or ethical problems that arise in a business environment. It
applies to all aspects of business conduct and is relevant to the conduct of individuals and entire
organizations.
Q. 1. 2) What is the relationship between ethics morals and values.
Q. 1. 3) What is corporate social responsibility? Why is it important for business to act in a
socially responsible manner?
Q. 1. 4) Explain total Quality Management.
Ans- Total Quality Management (TQM) is a comprehensive and structured approach to
organizational management that seeks to improve the quality of products and services through
ongoing refinements in response to continuous feedback. TQM requirements may be defined
separately for a particular organization or may be in adherence to established standards, such as
the International Organization for Standardization's ISO 9000 series. TQM can be applied to any
type of organization; it originated in the manufacturing sector and has since been adapted for use
in almost every type of organization imaginable, including schools, highway maintenance, hotel
management, and churches. As a current focus of e-business, TQM is based on quality
management from the customer's point of view.
Q. 1. 5) Briefly explain any two unethical practices in HRM
Ans- Unethical behaviors, in addition to being associated with the personal characteristics of the
individuals working in the organization, may as well arise from the organization itself. Unethical
conduct includes behaviors that lead to damaging consequences for the others, through
disregarding the laws, policies, regulations and organizational norms, which define the broad
legal parameters for the sustenance of the society, and are considered as illegal or unethical by
the society. To that end, the personnel regulation of a leading enterprise in Turkey has been
analyzed through the contents analysis method. The analysis performed over defined codes
(themes) demonstrates that enterprises may effectively benefit from personnel regulations in
developing an ethical working environment. As a result of the study, it has been observed that
there are many articles in the enterprise’s personnel regulation aimed to prevent unethical
behaviors. At the same time, it has been noticed that there is a separate section titled “principles
of business ethics” aimed to direct and support ethical behaviors and that the articles in the other
sections of the regulation are in support of these principles.

Q.2 Discuss the various employee’s employer rights and responsibilities.

Ans- Employers and employees have responsibilities to each other; they should also expect their
rights to be upheld. These rights and responsibilities relate to areas such as Health and Safety, the
provision of Terms and Conditions of Employment, Equal Opportunities and the right to be paid
a Minimum Wage. The Health and Safety at Work Acts set out responsibilities and rights for
both employees and employers. Employees are expected to carry out their work in a way that has
regard to the safety of others. Employers are expected to abide by a range of requirements
governing such aspects as providing safe machinery and equipment, carrying out regular health
and safety checks, ensuring the training of employees in health and safety issues, and carrying
out a risk assessment to assess the dangers of particular work activities. There are also specific
regulations about the way in which potentially harmful substances should be used and stored.
There are a number of requirements about the minimum temperature at work, and other aspects
of working conditions.
Employees are expected to receive the terms and conditions of their work setting out when their
work commences, what their main duties are, who they are accountable to, rates of pay, and
other entitlements.
Equal Opportunities legislation sets out that all employees should receive the same pay and
conditions for carrying out the same or broadly similar work. There are also laws against sexual,
racial and disability discrimination.
The Minimum Wage Act sets out the Minimum Wage that workers can expect to receive which
today is more than £5 an hour. The Minimum Wage is regularly reviewed and will increase over
time. There is also European Union requirements governing the maximum number of hours that
workers will be expected to work in a typical week which is currently set at 48 hours.

Q.3 Discuss the Gandhian Tradition with special reference to importance and relevance of
Trusteeship principle in modern business.
Ans- Reduce Inequalities: This concept tries to reduce inequalities. It tries to reduce the gap
between the rich and poor. It tries to reduce exploitation.
Change of Attitude of Businessmen: According to Mahatma Gandhi, businessmen should
change their attitude. They have no morale right to accumulate unlimited wealth while most of
their countrymen live in poverty and misery. Each businessman should take enough wealth to
live honorably. He should distribute the remaining wealth back to the society. Gandhi ji advised
the rich businessmen to voluntarily surrender their surplus wealth. If not done so, the poor
masses may revolt (fight) one day and plunder their entire wealth by force.
Social Pressure : People must put social pressure on businessmen to follow the principle of
trusteeship. They should boycott (not purchase) the products of those who do not practice
trusteeship.
Legal Pressure : If voluntary measures and social pressure do not work, legal pressure must be
put on the businessmen to follow the principle of trusteeship.
Socialism : This concept gives more importance to socialism. That is, the society is given much
more importance than an individual. So, the wealth of the society should be distributed equitably
to all its members.
Consider Social Needs : Businessmen should produce only those goods and services which are
useful for all members of the society. They should not produce goods and services, which are
used only by few individuals.
Equal distribution of wealth : According to Gandhi ji, all the wealth of the society should be
distributed equitably. There should not be concentration of wealth in few hands.
 Internal Assignment No. 2
MBA - 110
Indian Ethos & Management

Q. 1. (1) What are the Salient features of Holistic Approach for Managers in Decision
Making?
Ans- Holistic Management is a decision-making framework that ensures our decisions are
economically, environmentally and socially sound i.e. the triple bottom line. Holistic
Management enables you to develop a clear vision of the future you want. By changing the way
we make our decisions, we can tackle many of the problems we face today.
Q. 1. (2) List any four unethical practices in operations and Production management.
Ans Wal-Mart is company No. 1 in the world. It has the most revenue over any other company
($421 Billion).
In 2000, a collision with a semi-trailer left 52-year-old Deborah Shank with permanent brain
damage and in a wheelchair. Her husband and three sons were fortunate for a $700,000 accident
settlement from the trucking company. After legal costs and other expenses, the remaining
$417,000 was put in a special trust to care for Mrs. Shank. However, six years later the providers
of Mrs. Shank’s health plan, Wal-Mart, sued the Shanks for the $470,000 it had spent on her
medical care.
Wal-Mart was fully entitled to the money; in the fine print of Mrs. Shank’s employment contract
it said that money won in damages after an accident belonged to Wal-Mart. A federal judge had
to rule in favor of Wal-Mart, and the family of Mrs. Shank had to rely on Medicaid and social-
security payments for her round-the-clock care. Wal-Mart may be reversing the decision after
public outcry.
However this case pinpoints Wal-Mart’s often criticized treatment of employees as a commodity
and its sometimes inhuman business ethics.

Q. 1. (3) What are the external factors influencing Business environment?

Ans- Inflation refers to an increase in prices without a corresponding increase in wages, resulting
in lower purchasing power of consumers. When cost of production of products and services is
low, they will be sold at lower prices. Inflation rate is higher when costs of producing products
or services go up, or when there is too much money chasing too few supplies, prompting
suppliers to raise prices and earn higher profits.

Q. 1. (4) What is the concept of Quality of Work life?

Ans- In contrast to such theory based models, Taylor (1979) more pragmatically identified the
essential components of quality of working life as basic extrinsic job factors of wages, hours and
working conditions, and the intrinsic job notions of the nature of the work itself. He suggested
that a number of other aspects could be added, including :
1. individual power,
2. employee participation in the management
3. fairness and equity,
4. social support,
5. use of one’s present skills,
6. self-development
7. a meaningful future at work,
8. social relevance of the work or product,
9. effect on extra work activities.
Taylor suggested that relevant quality of working life concepts may vary according to
organisation and employee group.
Q. 1. (5) What do you mean by the concept of trusteeship?
Ans- Trusteeship is a socio-economic philosophy that was propounded by Mahatma Gandhi. It
provides a means by which the wealthy people would be the trustees of trusts that looked after
the welfare of the people in general. This concept was condemned by socialists as being in favor
of the landlords, feudal princes and the capitalists.

Q. 2 Discuss the relationship between law and ethics and also highlighting the Role of the
Govt. of India in enforcing ethical behavior.
Ans- Relationship between law and ethics: Business ethics and the law are two interrelated
terms that can exist independently of each other when it comes to business, yet intersect in
various vital aspects. The reason for this intersection can be attributed to t h e f a c t t h a t m o s t
t i m e s e t h i c a l c o n s i d e r a t i o n s a r e a l s o l e g a l l y enforceable. This is not always the
case though, because some ethical considerations in business are more like an unwritten code
based on basic morality that is assumed to be universal. One of the examples of a situation where
business ethics and the law intersect is in the area of contract in business. Morality or ethics
dictates that when two or more parties agree to something they should honor the agreement
unless there is some form of extenuating circumstance that make sit unduly difficult, or even
impossible, to fulfill the agreement. Yet, this is not always the case since some parties to an
agreement often find a way of extricating themselves from the performance of an agreement.
Fortunately, this type of act is not only ethically wrong, but it is also a violation of the law of
contract and the injured party may seek redress rom a court of competent jurisdiction.
Role of government in enforcing ethical behavior:-1. Legislating Role: - Some degree of
legislation is necessary to ensure that businesses comply with their ethical obligations and the
public does not suffer as a result of dishonest business practices. Rules aim to prevent the
practice of bribing planning authorities to circumvent planning and zoning laws, for example.
Many unethical businesses have engaged in such practices, and without explicit laws restricting
cheating, small businesses that do not engage in illegal activities would be placed at a
competitive disadvantage.
2. Supervisory Role: - The government has a supervisory role in the field of business ethics.
Anti-competitive behavior can occur when large organizations merge or are taken over, and
when a large organization has a very substantial market share or a monopoly, there is always the
temptation for it to act in an unethical manner, which will be detrimental to the public. The
government must monitor and supervise such mergers which are subject to antitrust law to
ensure that they are acting ethically and are not abusing a position of dominance.

Q.3 Explain with suitable examples the unethical issues involved in HRM & IT.
Ans- Unethical behaviors in HRM is being associated with the personal characteristics of the
individuals working in the organization, may as well arise from the organization itself. Unethical
conduct includes behaviors that lead to damaging consequences for the others, through
disregarding the laws, policies, regulations and organizational norms, which define the broad
legal parameters for the sustenance of the society, and are considered as illegal or unethical by
the society.
 Internal Assignment No. 1
MBA - 109
Financial Management
Q. 1. a. What is risk? How do you distinguish between systematic and unsystematic
risk?
Ans- A probability or threat of damage, injury, liability, loss, or any other negative occurrence
that is caused by external or internal vulnerabilities, and that may be avoided through
preemptive action.
Systematic risk refers to the risk which affects the whole stock market and therefore it cannot be
reduced or diversified away. For example any global turmoil will affect the whole stock market
and not any single stock, similarly any change in the interest rates affect the whole market
though some sectors are more affected then others.
Unsystematic risk is the extent of variability in the stock or security’s return on account of
factors which are unique to a company. For example it may be possible that management of a
company may be poor, or there may be strike of workers which leads to losses.

Q. 1. (b). Define “Miller and Orr model” of cash management.

Ans- Overview of Miller and Orr Model of Cash Management
The Miller and Orr model of cash management is one of the various cash management models in
operation. It is an important cash management model as well. It helps the present day companies
to manage their cash while taking into consideration the fluctuations in daily cash flow.
Description of the Miller and Orr Model of Cash Management
As per the Miller and Orr model of cash management the companies let their cash balance move
within two limits – the upper limit and the lower limit. The companies buy or sell the marketable
securities only if the cash balance is equal to any one of these.
Q. 1. ( c). State the features of money market.
Ans- Money market is a market for short term funds meant for use for a period of up to one year.
Generally money market is the source of finance for working capital. Transactions of money
market include lending and borrowing of cash for a short period of time and also sale and
purchase of securities having one year term or which gets redeemed (paid back) within one year
period.
Q. 1. (d.)Define the significance of international finance management.
Ans- International Finance is an area of financial economics that deals with monetary
interactions between two or more countries, concerning itself with topics such as currency
exchange rates, international monetary systems, foreign direct investment, and issues
of international financial management including political risk ...
Q. 1. (e). State the relationship between BOP and national economy.
Ans- The balance of payments, including the international investment position, forms an integral
part of the National Accounts, there is complete concordance between them in concept and
classification, although the extent of cross-classifications may differ between the two systems.
The balance of payments and National Accounts identify resident producers and consumers
identically, and both invoke the same concepts of economic territory and centre of economic
interest. Both use market prices as the primary concept of valuation of transactions and they
adopt identical concepts of accrual accounting. The systems use identical conversion procedures
to convert transactions which take place in foreign currency to UK currency.
Q.2 what do you understand by “Financial Management”? Discuss its significance in
Business Management.
Ans- Estimation of capital requirements: A finance manager has to make estimation with
regards to capital requirements of the company. This will depend upon expected costs and profits
and future programmes and policies of a concern. Estimations have to be made in an adequate
manner which increases earning capacity of enterprise.
Determination of capital composition: Once the estimation have been made, the capital
structure have to be decided. This involves short- term and long- term debt equity analysis. This
will depend upon the proportion of equity capital a company is possessing and additional funds
which have to be raised from outside parties.
Investment of funds: The finance manager has to decide to allocate funds into profitable
ventures so that there is safety on investment and regular returns is possible.
Disposal of surplus: The net profits decision have to be made by the finance manager. This can
be done in two ways:
Dividend declaration - It includes identifying the rate of dividends and other benefits like
bonus.
Retained profits - The volume has to be decided which will depend upon expansion,
innovational, diversification plans of the company.

Q.5 what is meant by inventory control? Explain the different costs associated with
inventory.
The principles of management are in the form of pre-determined solutions for repeatedly
occurring problems. They guide the manager. It is very important for every manager to know
them thoroughly. The importance of the principles of management becomes abundantly clear
from the following facts:

Internal Assignment No. 2

MBA - 109
Financial Management
Q. 1. a. Differentiate “arbitration” and “speculation” in foreign exchange market.
Ans- Arbitrage is where a trader will simultaneously purchase and sell an asset with hopes to
make a profit from the differences in the price levels of the asset that is bought and the asset that
is being sold. It must be kept in mind that the assets are bought and sold off different market
places; which is the reason for the differences in the price levels. The reason as to why there are
differences in price levels in different markets is because of the market inefficiencies; where
even though the conditions in one market place have resulted in a change, in price levels, as this
information has not yet impacted the other market place, the price levels remain different.
Q. 1. (b) Define marginal cost of capital.
Ans- The marginal cost of capital (MCC) is the cost of the last dollar of capital raised, essentially
the cost of another unit of capital raised. As more capital is raised, the marginal cost of capital
rises.
With the weights and costs given in our previous example, we computed Newco's weighted
average cost of capital as follows:
WACC = (wd)(kd)(1-t) + (wps)(kps) + (wce)(kce)
WACC = (0.4)(0.07)(1-0.4) + (0.05)(0.021) + (0.55)(0.12)
WACC = 0.084, or 8.4%
We originally determined the WACC for Newco to be 8.4%. Newco's cost of capital will remain
unchanged as new debt, preferred stock and retained earnings are issued until the company's
retained earnings are depleted
Q. 1. (c ) Write a short note on JIT.
Ans- JIT is a ‘pull’ system of production, so actual orders provide a signal for when a product
should be manufactured. Demand-pull enables a firm to produce only what is required, in the
correct quantity and at the correct time. This means that stock levels of raw materials,
components, work in progress and finished goods can be kept to a minimum.

Q. 1. (d)What are the conditions for the redemption of redeemable preference share?
Ans- As per section 55 of the Act, a company can issue only redeemable preference shares i.e. a
company is not allowed to issue irredeemable preference shares. Further, it is mandatory for
every company issuing preference shares to redeem it within a period of 20 years from the date
of issue. However, a company may issue preference shares with a redemption period of more
than 20 years’ time provided that a certain percentage of such shares are redeemed annually at
the option of the shareholders

Q. 1. (e). Mention the different types of dividend paid by companies.

Ans- Cash dividend. The cash dividend is by far the most common of the dividend types
used. On the date of declaration, the board of directors resolves to pay a certain dividend amount
in cash to those investors holding the company's stock on a specific date.
Stock dividend. A stock dividend is the issuance by a company of its common stock to its
common shareholders without any consideration. If the company issues less than 25 percent of
the total number of previously outstanding shares, you treat the transaction as a stock dividend. If
the transaction is for a greater proportion of the previously outstanding shares, then treat the
transaction as a stock split.
Property dividend. A company may issue a non-monetary dividend to investors, rather than
making a cash or stock payment. Record this distribution at the fair market value of the assets
distributed. Since the fair market value is likely to vary somewhat from the book value of the
assets, the company will likely record the variance as a gain or loss.
Q.7 what is the importance of ratio analysis to management? Explain briefly any two
ratios each for measuring:
i. Profitability ii. Liquidity
ans- Ratio analysis is an invaluable tool to a business management to determine the performance
of a business entity and to take cost controlling measures as and when necessary.
The concept of ratio analysis is very much helpful to a business, as it involves providing
essential facts by establishing a measure of relationship between two variables through which the
interpretation is easier.
Ratio analysis provides a clear understanding about profitability, liquidity, solvency and
efficiency of business entity.
Profitability is the ability of a business to earn a profit. A profit is what is left of the revenue a
business generates after it pays all expenses directly related to the generation of the revenue,
such as producing a product, and other expenses related to the conduct of the business activities.
Liquidity might be your emergency savings account or the cash lying with you that you can
access in case of any unforeseen happening or any financial setback. Liquidity also plays an
important role as it allows you to seize opportunities.

If you have cash and easy access to fund and a great deal comes along, then it's easier for you to
cease that opportunity. Cash, savings account, checkable account are liquid assets because they
can be easily converted into cash as and when required.
Q.8 Write short notes on:
a. Capital Redemption Reserve (CRR)
b. Weighted Average cost of capital
c. ABC analysis
d. Economic order quantity (EOQ)
Ans. a. A fund which exists both on the financial statements of a company and also as part of
the company's internal accounts. A business with a capital redemption reserve fund is legally
mandated by the U.S. Securities and Exchange Commission to make capital redemptions for
certain transactions acting as a hedge against capital reductions.

b. Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which
each category of capital is proportionately weighted.
All sources of capital, including common stock, preferred stock, bonds and any other long-term
debt, are included in a WACC calculation. A firm’s WACC increases as the beta and rate of
return on equity increase, as an increase in WACC denotes a decrease in valuation and an
increase in risk.

c. ABC analysis
A-items are goods which annual consumption value is the highest. The top 70-80% of the annual
consumption value of the company typically accounts for only 10-20% of total inventory items.
C-items are, on the contrary, items with the lowest consumption value. The lower 5% of the
annual consumption value typically accounts for 50% of total inventory items.
B-items are the interclass items, with a medium consumption value. Those 15-25% of annual
consumption value typically accounts for 30% of total inventory items.

The annual consumption value is calculated with the formula: (Annual demand) x (item cost per
unit).

d. Economic order quantity (EOQ)

Economic order quantity (EOQ) is the order quantity that minimizes the total holding costs and
ordering costs. It is one of the oldest classical production scheduling models. The framework
used to determine this order quantity is also known as Wilson EOQ Model, Wilson
Formula or Andler Formula. The model was developed by Ford W. Harris in 1913, but R. H.
Wilson, a consultant who applied it extensively, and K. Andler are given credit for their in-depth
analysis.