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Fina 023: Financial Management Question Paper

Fina 023: Financial Management

Course:Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2012

KENYA METHODIST UNIVERSITY
END OF 1''st ''TRIMESTER 2012 EXAMINATIONS
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : BUSINESS ADMINISTRATION
UNIT CODE : FINA 023
UNIT TITLE : FINANCIAL MANAGEMENT

TIME: 2 HOURS
INSTRUCTIONS
Answer question one and any other two questions.
Question One
Explain the following managerial functions of a finance manager.
Investment decisions.
(1 Mark)
Dividend decisions.
(1 mark)

(i) What is meant by ploughing back of profits?
(2 Marks)
(ii) Explain three advantages of pursuing the policy of ploughing back of profits in a public company. (3 Marks)

Highlight six importance of financial ratio analysis.
(6 Marks)

Explain the meaning of financial market and briefly discuss three types of financial markets.
(8 Marks)
Define and explain the following terms:
Pay back period.
(2 Marks)
Net present value.
(2 Marks)
Internal rate of return.
(2 Marks)

ABC Company will receive ksh.100, 000, 2 years from today. If it can earn a return of 10% for an average investment. What is the present value of its future cash flow?
(3 Marks)
Question Two
Discuss the importance of the cost of capital in many areas of its application.
(10 Marks)
The following is a capital structure of Nairobi Transporters Ltd.
Source Amount Proportion
Ordinary share 300,000 50%
Capital (ksh.1 each)
Retained earnings
150,000

25%
Preference share capital 100,000 16.67%
10% debentures 50,000 8.33%
600,000 100%
Corporation tax 50%
The costs of various sources of capital are:-
Source Cost
Ordinary Share capital 15%
Retained earnings 15%
Preference share capital 10%
Debentures (10% less tax element) 5%

Calculate the weighed average cost of capital. (10 Marks)
Question Three
Discuss the merits and the demerits of the internal rate of return (IRR) as a technique for capital budgeting.
(10 Marks)
Mena will receive Ksh.100, 000 in the first year and Ksh.300, 000 in the second year from a lottery.
If the rate of interest is 5% compounded annually, what is the present value of the earnings?
If the interest rate is compounded semi-annually, what is the present value of earnings?
(10 Marks)
Question Four
Discuss the factors that influence the working capital needs of a company.
(10 Marks)
Define the following terms as used in financial management:
Trade credit.
(2 Marks)
Bill of lading.
(2 Marks)
Trading on equity.
(2 Marks)
Redeemable debentures.
(2 Marks)
Inventory management.
(2 Marks)
Question Five
Discuss the current development in financial management.
(10 Marks)
Given below are budgetary estimates of Kamuto Corporation for the coming year 2013.
Direct costs – sh.2, 400.000,
Estimated sales will be 180% of the direct costs,
Other operating expenses – sh. 424,000
Assets employed – sh. 4,000,000 financed 50% equity.
Cost of debt is 10% p.a,
Assume tax rate of 50%
Required:- Calculate
Asset turnover.
Net profit margin ratio.
Return on owner’s equity.
Return on assets.
(10 Marks)

Fina 023: Financial Management Question Paper

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