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Cfm 202 Financial Modelling And Forecasting Question Paper
Cfm 202 Financial Modelling And Forecasting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
UNIVERSITY EXAMINATIONS: 2011/2012
YEAR 2 EXAMINATION FOR THE BACHELOR OF COMMERCE
CFM 202 FINANCIAL MODELLING AND FORECASTING
(Saturday)
DATE: APRIL 2012 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any other Two Questions
QUESTION ONE
a) A tax consultant hypothesis is that income tax evasion depended on:-
i) The true income (X1)
ii) The marginal tax rate (X2)
iii) The penalty of tax (X3)
iv) The probability of detection (X4)
He performed a multiple linear regression and got the following results:
Variables Coefficient estimates Standard error
Constant -52.59 7.6774
X1 33.44 2.3937
X2 0.93 0.1465
X3 -0.20 0.0683
X4 -1.48 0.3795
Sample size, n = 25
Required:
i) Write down the Regression model from the above output. (2 Marks)
ii) State whether X1, X2, X3 and X4 are statistically significant in explaining the variation of the
response variable Y. (8 Marks)
2
iii) Calculate a 95% confidence interval for coefficient of X1. (2 Marks)
b) Distinguish between the following sets of terms:
(i) Qualitative and quantitative forecasts. (4 Marks)
(ii) Seasonal variations and cyclic variations. (4 Marks)
(iii)Explained variation and unexplained variation. (4 Marks)
(iv) Ordinary least squares method and weighted moving averages. (4 Marks)
(v) Participatory and zero based budgets (2 Marks)
(Total: 30 Marks)
QUESTION TWO
A certain domestic electrical appliance was introduced to the market in year 2002. At the point of sale
of the appliance, a customer is offered the chance to purchase an insurance policy to cover repairs and
spare parts for the first five years of its use. The insurance policy cannot be purchased at any other
time after the purchase of the appliance. The following information relates to the totals sales of the
appliances, number of insurance policies sold and the general price index for electrical goods:
Year Sale of appliances
(Sh.000)
Sale of insurance policies
(Number)
2002 3,600 400
2003 6,250 300
2004 9,170 600
2005 14,000 1,200
2006 21,600 1,700
2007 27,000 2,200
2008 41,600 2,000
Required:
(i) Calculate the person’s product moment coefficient of correlation between the sale of
appliances and sale of insurance policies and interpret. (7 Marks)
(ii) The extent to which variation in policies is explained by sales of appliances
(3Marks)
(iii) The least squares regression equation to predict the number of insurance policies sold.
(5 Marks)
(iv) Use High-Low method to predict policies when sh 50, 000 of appliances are sold
3
(5 Marks)
QUESTION THREE
a) Differentiate between “additive” and “multiplicative” models as used in time series
analysis. (4 Marks)
b) Grand National Hotel has been operating in Kenya for the past 15 years. The quarterly profits of
the hotel during the last four years were as follows:
Profits (Sh.’million’)
Quarter
Year 1 2 3 4
2008 33 36 35 38
2009 42 40 42 47
2010 54 53 54 62
2011 70 67 70 77
Required:
(i) Centred four-quarter moving profits. (6 Marks)
(ii) Average seasonal index for each quarter using the multiplicative model. (6 Marks)
(iii) Deseasonalised profits for the four years. (4 Marks)
(Total: 20 Marks)
QUESTION FOUR
A small manufacturing firm produces one product.
The budgeted sales for the month of January 2005 are for 10,000 units at a selling price of Sh.2,000 per
unit. Other details are as follows:
1. Two components of input are used in the production of one unit of output.
Component (Input Number Unit cost of each component
X
W
5
3
20
10
2. Stocks at the beginning of the month are budgeted as follows:
- 4,000 units of finished goods at a unit cost of Sh.1,050 per unit
- Component X: 16,000 units at a unit cost of Sh.20
- Component W: 9,600 units at a unit cost of Sh.10
3. Production of each unit requires the following labour hours.
4
Department Hours per unit Labour rate per hour
Production
Finishing
4
2
100
140
4. Factory overhead is absorbed into units cost on the basis of direct labour hours. The budgeted
factory overhead for the month is Sh.1,920,000.
5. The administration, selling and distribution overhead for the month is budgeted at
Sh.5,500,000.
6. The company plans a reduction of 50% in quantity of finished stock at the end of the month and
an increase of 30% in the quantity of each input component.
Required:
(a) For the month of October 2004
(i) Production quantity budget; (4 Marks)
(ii) Materials wage budget (2 Marks)
(iii) Materials purchase budget (4 Marks)
(iv) Direct labour budget (4 Marks)
(b) The budgeted profits and loss account. (6 Marks)
(Total 20 Marks)
QUESTION FIVE
Kameko ltd want to determine its liquidity position in 3 years from closure of business in year
2002.The financial position as at December 2002 was
Sh.’000’ Sh.’000’
Fixed assets:
Freehold premises
Plant and equipment
Motor vehicles
Current assets:
Stock
Debtors
Bank balance and cash in hand
Current liabilities
Creditors
Accrued expenses
10,500
7,200
5,350
12,500
9,850
5,950
8,350
6,510
23,050
28,300
5
Ordinary share capital
Reserves
15% loan
(14,860)
36,490
30,000
3,490
33,490
3,000
36,490
Note:
1. Fixed assets are expected to grow by 15% over the period while current assets are expected to
grow by 20%.
2. Current liabilities are expected to grow by 10%. Over the period
3. Sales for yea 2002 amounted to 400m AND are expected to grow by 12%, 8% and 10% in
2003, 2004 and 2005 respectively. Dividend payout ratio of 60% is to be maintained.
4. Profit after tax is to maintained at 5% of sales
Required: External financing required and pro forma statement of financial position as at December
2005. ( Total 20 Marks)
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