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Financial Planning And Control Question Paper
Financial Planning And Control
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2009/2010
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 201 FINANCIAL PLANNING AND CONTROL
DATE: AUGUST 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) Briefly highlight the importance of a budgets (8 Marks)
b) Distinguish between capital structure and financial structure (4 Marks)
c) The DuPont formula defines the net return on shareholders’ equity as a function of the following
components;
Operating margin - financial leverage
Asset turnover - Income tax rate
Interest burden
The following data s provided for Okambo Ltd
Income statement data
2008
“millions”
2009
“millions”
Revenues 542 979
Operating income 38 78
Depreciation and amortization 3 9
Interest expense 3 0
Pretax income 32 67
2
Income taxes 13 37
Net Income after Tax 19 30
Balance sheet data 1
Fixed assets 41 70
Total assts 245 291
Working capital 123 157
Total Debt 16 0
Total shareholder equity 159 220
Required
i) Calculate each of the five components listed above for the two years [10 Marks]
ii) Calculate ROE using the five components for the two years [4 Marks]
iii) Briefly; discuss the impact of the changes in asset turnover and finical leverage on the change of
ROE from 2008 to 2009. [4 Marks]
QUESTION TWO
a) Jamhuru Ltd has 1.4 million shares of stock outstanding. The stock currently sells for Ksh 20 a
share. The firm debt is publicly traded at the NSE and was recently quoted at 93% of the face
value. It has a total face value of Ksh 5 million and currently priced to yield 11% before tax.
The risk free rate is 8% and the Market risk premium is 7%. The estimated beta is 0.74.
Corporate tax rate is 30%.
Required:
Compute the Market weighted WACC (10 Marks)
b) Mali Ltd is considering acquiring a machine which is likely to increase production of sales
levels.
The machine will cost Sh 10m & will have a useful life of 4 years. The salvage value will be Sh. 2m.
Aditional information;
The annual incremental sales & fixed costs (excluding dep) the use of the machine & their probability
of occurrence are estimated as follows;
Incremental sales Prob Incremental Fc Prob
50,000,000 0.3 20,000,000 0.4
3
80,000,000 0.4 30,000,000 0.6
90,000,000 0.3
Investment in raw materials of Sh. 6,000,000 and increase creditors of Sh. 4,000,000.
Cost of capital is 10 percent & tax rate 30 percent
Required
Using NPV advise whether the acquisition should be accepted (10 Marks)
QUESTION THREE
Mijijo Ltd Manufactures a product branded “omega”. The production of omega requires a raw material
which costs Sh. 136 per kilogramme and direct labour which costs Sh. 600 per hour.
Each unit of omega requires 2 kilogrammes of the raw material, 15 minutes of direct labour and
variable overheads of Sh. 115. Delux retails at Sh. 1,360 per unit.
Additional information:
1. The company is in the process of preparing budgets for the financial year ending 30 June 2008.
2. The fixed production overheads for the year
Sh.
Depreciation of plant and machinery 1,500,000
Insurance 600,000
Supervision 2,100,000
Other fixed overheads (non-production) are estimated as follows:
Sh.
Depreciation of office equipment 900,000
Advertising 600,000
Salaries 6,480,000
3. Allocated selling and administration expenses for the year ending 30 June 2008 are estimated at Sh.
130 per unit of omega The budgeted opening and closing inventories of raw material and finished
goods (omega) for the year ending 30 June 2008 are shown below:
1 July 2007 30 June 2008
Raw material 15,000 units 3,000Kgs
Finished goods 1,500 units 7,500 units
4
4. The company expects to sell 300,000units of omega during the year ending 30 June 2008:
Required:
Prepare the following budgets for the year ending 30 June 2008:
i. Sales budget (in shillings). (4 Marks)
ii. Production budget (in units). (4 Marks)
iii. Direct materials budget (in shillings). (4 Marks)
iv. Direct labour budget (in shillings). (4 Marks)
v. Manufacturing overhead budget (in shillings). (4 Marks)
QUESTION FOUR:
(a) “ABC is a new development in cost accounting that attempts to allocate overhead costs
based on the activities that give rise to those overheads.” Discuss the merits and demerits of
ABC. (10 Marks)
(b) Discuss the purposes and benefits of a master budget to an organization. (10 Marks)
QUESTION FIVE:
(a) “Standard costing is a management control technique for every activity”. Discuss
standard costing and indicate the benefits that accrue to management that uses standard
costing systems. (10 Marks)
(b) Compare and contrast.
i.) Current standards and ideal standards
ii.) Basic standards and normal standards (10 Marks)
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