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Entrepreneurial Finance Question Paper
Entrepreneurial Finance
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2010
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
INSTITUTE OF OPEN LEARNING
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 412 :
ENTREPRENEURIAL FINANCE
=================================================================
DATE: THURSDAY 18TH FEBRUARY 2010
TIME: 2.00 P.M. – 4.00 P.M.
INSTRUCTIONS
Answer ALL Questions.
Q.1
An entrepreneur has a new product and timing is vitally important. Profitability will
be greater if introduction is immediate but product quality (measured on a scale of 1
to 10, 10 best) will be higher with a deferred introduction as follows (decimal
numbers indicate probabilities)
• 6
Sh 400, 2 quality
Now
• 4
Sh 300, 4 quality
• 8
Sh 200, 6 quality
Later
•2
Sh
100,
8
quality
Page 1 of 3
The utility of wealth function and quality function ARE:
Profit
u(p)
=
p
Quality u(q) =
100 q½
Total utility is the sum of profit and quality utilities.
Required:
Determine
the
preferred
timing.
(17
marks)
Q.2
RM Enterprises plans for the coming 4 quarters (one year) as below:
Quarter
1
2
3
4
Sales forecast (units)
40,000
60,000 50,000 45,000
Planned production
50,000
50,000 50,000 50,000
Beginning inventory in the 1st quarter = 10,000 melons. The 4th quarter selling price
= sh 100 per unit and variable production costs are sh. 40 per unit with sh. 300,000
fixed costs per quarter and selling and administrative costs are sh. 10 per unit.
Required:
a)
Develop a schedule of planned sales and production for the
year.
b)
Find budgeted profits for the 4th quarter.
(18 marks)
Q.3
An amount of sh. 400,000 funding is needed for 6 months. The entrepreneur is
considering
2
possibilities.
a)
A loan from an insurance company; terms are 12% interest rate with an 80%
advance. The remaining 20% will come from forgoing cash discounts on his
payables, where standard terms are 2/10, net 30.
b)
A loan from a bank at 10% interest rate with 70% advance. Thirty percent
will come from trade credit with terms of 2/10, net 30 as in (a) above.
Required:
Which is the least costly financing
method?
(18
marks)
Page 2 of 3
Q.4
The accounts receivable balance on the records of an entrepreneur was sh 127,000 on
the beginning of quarter one of the year. Credit sales were recorded at sh 530,000
during the quarter. The accounts receivable balance at the end of quarter one was sh
119,000. In going over the records, you find that accounts receivable of sh 19,000
were written off during quarter one as being uncollectible.
Required:
How much cash was collected on credit sales during quarter
one?
(17 marks)
Page 3 of 3
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