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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:2009
UNIVERSITY EXAMINATIONS: 2009/2010
SECOND YEAR STAGE 2 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 201: FINANCIAL PLANNING AND CONTROL
(DAY& EVENING CLASS)
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer Question ONE and Any other TWO Questions
QUESTION ONE
a) Distinguish between capital structure and financial structure (4 Marks)
b) Describe the factors that influence financing decisions in an organisation (8 Marks)
c) 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 (8 Marks)
d) 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.
Additional 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
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 TWO
a) Distinguish between a fixed budget and a flexible budget. (2 Marks)
b) Dullock Ltd. Manufactures a product branded “Delux”. The production of Dulex requires a raw material which costs Sh. 136 per kilogramme and direct labour which costs Sh. 600 per hour.
Each unit of Delux 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 Delux.
4. The budgeted opening and closing inventories of raw material and finished goods (Delux) 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
5. The company expects to sell 300,000units of Delux during the year ending 30 June 2008:
Required:
Prepare the following budgets for the year ending 30 June 2008:
i. Sales budget (in shillings). (2 Marks)
ii. Production budget (in units). (3 Marks)
iii. Direct materials budget (in shillings). (3 Marks)
iv. Direct labour budget (in shillings). (3 Marks)
v. Manufacturing overhead budget (in shillings). (3 Marks)
c) Outline the benefits that a manufacturing enterprise can drive from the use of budgets.
(4 Marks)
QUESTION THREE
a) Identify the main tools used in financial planning ( 10 Marks)
b) The basic ideas justifying the use of Activity Based Costing (ABC) and Activity Based
Budgeting (ABB) are well publicized and the number of applications has increased. However,
there are apparently still significant problems in changing from existing systems.
Required;
Explain which characteristics of an organisation may make the use of ABC useful and
the problems that may cause the organisation not to use or abandon ABC (10 Marks)
QUESTION FOUR
a) Discuss the components of a master budget (10 Marks)
b) Discuss the importance of Financial Planning and Control (10 Marks)
QUESTION FIVE
Year 1 Year 2
Sales Kshs 193,730 Kshs 320,115
Cost of Goods Sold 159,937 261,801
Net Income 122,642 -299,460
Net Cashflow - 40,971 - 15,810
Balance Sheet
Cash 247,403 179,609
Marketable Securities 230,644 32,695
Accounts Receivable 15,520 26,129
Inventories 3,886 48,220
Total Current Assets 497,453 286,653
Accounts Payable 19,204 19,066
Accrued Liabilties 39,627 89,820
Total Current Liabilities 58,831 108,886
a) Calculate the current and quick ratio at the end of each year. How has the company’s shortterm
liquidity changed over this period? (4 Marks)
b) Assuming a 365 day year for all calculations, compute the following:
i) The collection period each year based on sales (2 Marks)
ii) The inventory turnover , payables each year based on cost of goods sold.(2 Marks)
c) What is your interpretation of the company’s performance (2 Marks)
d) Discuss the determinants at the cost of capital for a firm (10 Marks)
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