UNIVERSITY EXAMINATIONS
May/June 2020
FIN3702
WORKING CAPITAL MANAGEMENT
70 Marks
2 Hours
This paper consists of 15 pages.
Instructions:
Use of a non-programmable calculator is permissible.
This is a take home examination, but you are advised not to consult your study material in order
to save time.
The exam is an assessment and it should still be your own work. Please remember to sign the
honesty declaration at the end of the examination paper.
This exam paper remains the property of the university and may not be distributed.
Please note that you submit the answers of your exam the same way you submit a written
assignment on myUNISA. It is necessary that you submit your file in PDF format. Further
instructions have been provided on myUNISA.
Adequate spaces for answering the questions have been provided on this exam paper but you are
welcome to use your own answer sheets as long as your work is legible.
, FIN3702
MAY/JUNE ONLINE EXAM
Answer SECTION A and SECTION B.
SECTION A consists of 25 multiple-choice questions worth 25 marks (answer table provided
on page 8) and SECTION B consists of three essay questions totalling 45 marks. Your final
mark out of 70 will be expressed as a percentage.
SECTION A: MULTIPLE-CHOICE QUESTIONS [25 MARKS]
1. A corporation sold a fixed asset for R100 000. This is an …
1. operating cash flow and a use of funds.
2. investment cash flow and a use of funds.
3. operating cash flow and a source of funds.
4. investment cash flow and a source of funds.
Investment flows – cash flows associated with purchase and sale of both fixed assets and
equity investments in other firms.
2. A firm with a cash conversion cycle of 175 days can stretch its average payment period
from 30 days to 45 days. This will result in a/an …
1. decrease of 30 days in the cash conversion cycle.
2. increase of 30 days in the cash conversion cycle.
3. increase of 15 days in the cash conversion cycle.
4. decrease of 15 days in the cash conversion cycle.
CCC= AAI +ACP -AAP
The goal is to minimise the length of the CCC which in turn minimises the
negotiated liabilities and the costs associated with them. This can be achieved by
using the following strategies
▪ Turn inventory over in shorter time without running out of stock.
▪ Collect trade receivables quicker without losing sales from high pressure collection
techniques.
▪ Manage mail, processing and clearing time to reduce them when collecting from
customers and to increase them when paying suppliers.
▪ Pay trade and other payables as slowly as possible with damaging the firm’s credit
rating
Page 2 of 17
, FIN3702
MAY/JUNE ONLINE EXAM
3. A firm has an operating cycle of 120 days, an average collection period of 40 days,
and an average payment period of 30 days. The firm's average age of inventory is …
1. 50 days.
2. 70 days.
3. 80 days.
4. 90 days.
OC = AAI +ACP
AAI = OC - ACP
=120- 40
= 80 days
4. If a firm increases its current assets relative to total assets, it …
1. reduces return and reduces risk.
2. increases return and reduces risk.
3. reduces return and increases risk.
4. increases return and increases risk.
If total assets remain constant and CA increase (i.e. the ratio increases) the effect is a
decrease in profits since CA are less profitable than non-current assets. Risk is also decreased
since there is now an increase in net working capital.
5. As part of a union negotiation agreement, the National Education, Health and Allied
Workers’ Union (Nehawu) conceded to be paid every two weeks instead of every week.
A major firm employing hundreds of workers had a weekly payroll of R1 000 000 and
the cost of short-term funds was 12%. The effect of this agreement meant that the firm
…
1. increased its cash cycle.
2. decreased its cash turnover.
3. realised an annual loss of R120 000.
4. realised an annual saving of R120 000.
Annual savings = 0.12 x R1 000 000
= 120 000
Page 3 of 17
May/June 2020
FIN3702
WORKING CAPITAL MANAGEMENT
70 Marks
2 Hours
This paper consists of 15 pages.
Instructions:
Use of a non-programmable calculator is permissible.
This is a take home examination, but you are advised not to consult your study material in order
to save time.
The exam is an assessment and it should still be your own work. Please remember to sign the
honesty declaration at the end of the examination paper.
This exam paper remains the property of the university and may not be distributed.
Please note that you submit the answers of your exam the same way you submit a written
assignment on myUNISA. It is necessary that you submit your file in PDF format. Further
instructions have been provided on myUNISA.
Adequate spaces for answering the questions have been provided on this exam paper but you are
welcome to use your own answer sheets as long as your work is legible.
, FIN3702
MAY/JUNE ONLINE EXAM
Answer SECTION A and SECTION B.
SECTION A consists of 25 multiple-choice questions worth 25 marks (answer table provided
on page 8) and SECTION B consists of three essay questions totalling 45 marks. Your final
mark out of 70 will be expressed as a percentage.
SECTION A: MULTIPLE-CHOICE QUESTIONS [25 MARKS]
1. A corporation sold a fixed asset for R100 000. This is an …
1. operating cash flow and a use of funds.
2. investment cash flow and a use of funds.
3. operating cash flow and a source of funds.
4. investment cash flow and a source of funds.
Investment flows – cash flows associated with purchase and sale of both fixed assets and
equity investments in other firms.
2. A firm with a cash conversion cycle of 175 days can stretch its average payment period
from 30 days to 45 days. This will result in a/an …
1. decrease of 30 days in the cash conversion cycle.
2. increase of 30 days in the cash conversion cycle.
3. increase of 15 days in the cash conversion cycle.
4. decrease of 15 days in the cash conversion cycle.
CCC= AAI +ACP -AAP
The goal is to minimise the length of the CCC which in turn minimises the
negotiated liabilities and the costs associated with them. This can be achieved by
using the following strategies
▪ Turn inventory over in shorter time without running out of stock.
▪ Collect trade receivables quicker without losing sales from high pressure collection
techniques.
▪ Manage mail, processing and clearing time to reduce them when collecting from
customers and to increase them when paying suppliers.
▪ Pay trade and other payables as slowly as possible with damaging the firm’s credit
rating
Page 2 of 17
, FIN3702
MAY/JUNE ONLINE EXAM
3. A firm has an operating cycle of 120 days, an average collection period of 40 days,
and an average payment period of 30 days. The firm's average age of inventory is …
1. 50 days.
2. 70 days.
3. 80 days.
4. 90 days.
OC = AAI +ACP
AAI = OC - ACP
=120- 40
= 80 days
4. If a firm increases its current assets relative to total assets, it …
1. reduces return and reduces risk.
2. increases return and reduces risk.
3. reduces return and increases risk.
4. increases return and increases risk.
If total assets remain constant and CA increase (i.e. the ratio increases) the effect is a
decrease in profits since CA are less profitable than non-current assets. Risk is also decreased
since there is now an increase in net working capital.
5. As part of a union negotiation agreement, the National Education, Health and Allied
Workers’ Union (Nehawu) conceded to be paid every two weeks instead of every week.
A major firm employing hundreds of workers had a weekly payroll of R1 000 000 and
the cost of short-term funds was 12%. The effect of this agreement meant that the firm
…
1. increased its cash cycle.
2. decreased its cash turnover.
3. realised an annual loss of R120 000.
4. realised an annual saving of R120 000.
Annual savings = 0.12 x R1 000 000
= 120 000
Page 3 of 17
