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Fina 023: Financial Management Question Paper

Fina 023: Financial Management

Course:Accounting,Finance And Investiments

Institution: Kenya Methodist University question papers

Exam Year:2013

KENYA METHODIST UNIVERSITY
END OF 1''ST ''TRIMESTER 2013 (EVENING) EXAMINATION
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : ACCOUNTING, FINANCE & INVESTMENT
UNIT CODE : FINA 023
UNIT TITLE : FINANCIAL MANAGEMENT

TIME: 2 HOURS
Instructions: Answer Question ONE and any other TWO Questions.
Question One
Explain any FIVE functions of a finance manager
Briefly describe Agency Theory and state FIVE types of agency relationships in finance.
Outline FIVE characteristics of ordinary share capital.
State FIVE factors that would influence the cost of capital.
Mrembe Company Ltd was recently incorporated to manufacture canned egg soup. It has the following capital structure in market value terms.
Shs.
160,000 Ordinary Shares 4,000,000
Preference Shares 1,000,000
Debentures 3,000,000
Total 8,000,000
The following additional information is available;
The required rate of return on equity is 17%.
The new company’s debt is currently yielding 13%.
Its preference shares yield 12%
Required:
Calculate the weighted average cost of capital.
Question Two
Outline any FIVE features of capital budgeting decisions.
The following information, relate to projected cashflow of three projects which are mutually exclusive, in which Songa Mbele Ltd is considering to invest in.
Cash Flows
A B C
1,500,000 1,500,000 1,500,000
Cash inflows
Year 1 600,000 400,000 300,000
Year 2 500,000 500,000 500,000
Year 3 400,000 600,000 400,000
Year 4 - - 300,000
Year 5 300,000
Year 6 300,000
Required:
Advise the management of the company on which project to undertake (Apply the Net Present Value approach of investment Appraisal).
The required rate of return is 10%.
Question Three
Explain factors that influence the working capital needs for a company.
Distinguish between debt capital and owners capital.
Briefly explain FOUR corte associated with inventories.
Question Four
The following information has been extracted from the account of Twin Cheges Ltd, an expanding wholesale business, for the year ended 30th September 2012.
Income Statement
For the year ended 30th September 2012
Shs ’000’ shs ’000’

Net sales 3000
Cost of goods sold 2580
Gross Profit 420
Less Operating expenses
Selling 122
General Administration 68
Interest Charges 45 235
185
Add: Investment incomp. 15
200
Less: Corporation tax 90

Net Income after tax 110
Balance Sheet as at 30th September
____________________________________________________________________
ASSETS 2012 2011
’000’ ’000’
Cash 52 50
Investments 175 150
Debtors 255 200
Stock 350 300
Total Current Assets 832 700

Plan and Equipment (Net) 1210 1300
Total Assets 2042 2000

Trade Creditors 192 160
Accruals 15 10
Tax Payable 135 130
Total current liabilities 342 300
Retained earnings 380 400
Total claims on assets 2042 2000
Required:
Calculate the following
Current ratios
Stock turnover
Average collection period
Gross profit margin on sales.
Comment briefly on the significance of financial ratios and their limitation.
Question Five
Identify any FIVE basis of classification of preference shares and explain briefly the TWO types of preference shares under each classification.

Fina 023: Financial Management Question Paper

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