Financial ManagementQuestion 5527 of 217
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5. What will be the estimated working capital to be submitted by you in the proposal?

Options

A` 5,33,775
B` 4,36,725
C` 5,50,275
D` 4,50,225 (2 Marks)
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Correct Answer

✅ Option A — ` 5,33,775

All Options:

  • A` 5,33,775 ✓
  • B` 4,36,725
  • C` 5,50,275
  • D` 4,50,225 (2 Marks)

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Detailed Solution & Explanation

To calculate the estimated working capital to be submitted by the company in the proposal:

**1. Net Working Capital (before contingency margin):**
Using the values of Total Current Assets and Total Current Liabilities calculated in Questions 3 and 4 respectively:
Net Working Capital=Total Current Assets−Total Current Liabilities\text{Net Working Capital} = \text{Total Current Assets} - \text{Total Current Liabilities}
Net Working Capital=‘7,10,250−‘2,25,000=‘4,85,250\text{Net Working Capital} = ` 7,10,250 - ` 2,25,000 = ` 4,85,250

**2. Margin of Safety for Contingencies:**
The company wants to maintain a margin of safety of 10% on the net working capital:
Margin of Safety=10%ב4,85,250=‘48,525\text{Margin of Safety} = 10\% \times ` 4,85,250 = ` 48,525

**3. Total Working Capital to be Submitted:**
Total Working Capital=Net Working Capital+Margin of Safety\text{Total Working Capital} = \text{Net Working Capital} + \text{Margin of Safety}
Total Working Capital=‘4,85,250+‘48,525=‘5,33,775\text{Total Working Capital} = ` 4,85,250 + ` 48,525 = ` 5,33,775

Hence, **Option A** is the correct answer.

Key Concepts to Understand

Working Capital

The excess of current assets over current liabilities, representing the short-term liquidity available to a business for its day-to-day operations. Positive working capital indicates good short-term financial health.

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