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Financial Modelling And Forecasting (Day&Amp;Evening Class) Question Paper
Financial Modelling And Forecasting (Day&Amp;Evening Class)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
UNIVERSITY EXAMINATIONS: 2009/2010
SECOND YEAR STAGE 3 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 202: FINANCIAL MODELLING AND FORECASTING
(DAY&EVENING CLASS)
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ONE and Any other TWO Questions
QUESTION ONE
a) You are provided with the data below
Jan Feb march April May June July August Sept
Sales’000 510 310 224 347 539 624 379 420 360
Required:
i) Conduct a 3 month moving average ( 3 Marks)
ii) Forecast the sales for the month of October ( 2 Marks)
b) You have been presented with the data below:
Week Sales Price
1 60 3
2 65 9
3 70 5
4 71 7
5 75 5
6 77 7
7 84 8
8 90 10
9 102 12
Required:
Use Regression analysis to estimate the relationship between sales and Price (10 Marks).
c) Discuss the steps in financial forecasting ( 4 Marks)
d) Distinguish between the percentage of sales forecasting and forcasting using projected financial statements ( 4 Marks)
e) XYZ is forecasting its financing needs for the next year. The original forecasts shows an external financing need of kshs 10 million. On reviewing the forecast, the production manager, having just returned from an accounting seminar, recommends increasing depreciation next year – for reporting purposes only- by 1 million. She explains, rather condescendingly , that this will reduce net fixed assets by 1 million and , because a reduction of an asset is a source of cash ,this will reduce the external funding by a like amount. Explain why the production manager
could be wrong. (5 Marks)
f) Suppose you constructed a proforma balance sheet and cash budget for a company for the sametime period and the external financing required from the proforma forcast exceeded the cash
deficit estimated on the cash budget . How would you interpret this result. ( 5 Marks)
QUESTION TWO
You are provided with the data below
Sale of Bread in ‘000s
Q1 Q2 Q3 Q4
Year 19 -1 20 32 62 29
19-2 21 42 75 31
19-3 23 39 77 48
19-4 27 39 92 53
Required:
Using the time series trend and seasonal analysis method to forecast sales of bread for the 17th , 18th ,19th and 20th quarters ( 15 Marks)
QUESTION THREE
a) James Banda has been working as a Transport Manager for GDC Ltd and has retired. He
intends to start up in business on his own account, using K150, 000 which he has invested at New Building Society. James maintains an account with National Bank with a minimal balance but intends to approach the bank for the necessary additional finance. Peter asks you for advice and provides the following additional information. Arrangements have been made to purchase fixed assets costing K80,000. These will be paid for at the end of September and are expected to have a five year life, at the end of which they will possess a nil residual value. Stocks costing K50, 000 will be acquired on 28 September and subsequently monthly purchases will be at a level sufficient to replace forecast sales for the month. Forecast monthly sales are K30, 000 for October, K60, 000 for November and December, and K105,000 from January 2004 on wards.
Selling price is fixed at the cost of stocks plus 50%. Two month’s credit will be allowed to customers but one month’s credit will be received from suppliers of stock. Running expenses,including rent but excluding depreciation of fixed assets are estimated at K16,000 per month.
James intends to make monthly cash drawings of K10, 000.
Prepare a cash budget for six months to 31 March 2004 (15 Marks)
b) Using examples distinguish between a relevant assumption and a significant assumption
(5 Marks)
QUESTION FOUR
The financial analyst for ABC limited has been presented with the data below:
Jan Feb march April May June July August Sept
Sales’000 310 289 314 317 339 324 319 320 330
Advertising
‘000
34 32 43 44 44 39 32 33 34
prices ‘000 15 12 14 27 20 23 22 19 18
Advise the financial analyst if there is a relationship between the Sales, Advertising & Prices variables
(20 Marks)
QUESTION FIVE
a) Discuss the limitations of moving averages as a method of financial forecasting ( 3 Marks)
b) Distinguish between extrapolation and intrapolation ( 3 Marks)
c) The financial planner for a multinational company was presented with the data below
Month Jan Feb March April may June July Aug Sept Oct
sales’000 120 149 172 157 211 189 234 235 216 220
Required:
Using an alpha of 0.1 forecast the sales for November (8 Marks)
d) Discuss under what circumstances an analyst use should:
i) Multiplicative Model ( 3 Marks)
ii) Additive Model ( 3 Marks)
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