BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Total Approach
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Cash Cost Approach
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Detailed explanation-1: -Under this approach of estimation of working capital requirements, all costs including depreciation and profit margin are included. Thus, production overhead inclusive of depreciation is considered for calculation of the cost of work-in-progress.
Detailed explanation-2: -Working capital investment decisions are categorized into three approaches based on the organizational policy and risk-return trade-off, i.e., aggressive, conservative and hedging/moderate. Hedging approach is an ideal method of working capital financing with moderate risk and profitability.
Detailed explanation-3: -The conservative strategy relies on long-term financial instruments to source funds for fixed assets, permanent working capital and part of the temporary working capital. Since long-term finances are impervious to the risk of interest rate fluctuations, these prove to be low risk.