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Cfm 101 Business Finance Question Paper
Cfm 101 Business Finance
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2012
1
UNIVERSITY EXAMINATIONS: 2011/2012
YEAR 1 EXAMINATION FOR THE BACHELOR OF COMMERCE
CFM 101 BUSINESS FINANCE (SATURDAY)
DATE: APRIL 2012 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any other Two Questions
QUESTION ONE
a) Explain the functions of a financial manager (5Marks)
b) Compare and contrast the financial and non-financial goals of a firm. (5 Marks)
c) Distinguish between marginal cost of capital (MCC) and weighted average cost of capital
(WACC). (5 Marks)
d) State any five advantages of corporate governance to the shareholders (5 Marks)
e) Exactly ten years from now Tom Mboya will start receiving a pension of sh.6000 a year. The
payment will continue for sixteen years. How much is the pension worth now, if Mboya’s interest
rate is 10% (5 Marks)
f) Explain the concept of capital budgeting, and state the four essential properties of capital budgeting
techniques (5 Marks)
(Total 30 Marks)
QUESTION TWO
Your university is considering two investment projects x and y. Each project has a cost of sh.1,000,000
and cost of capital for each project is 10%.The project expected net cash flows are as follows:-
Project Year 0 1 2 3 4
X sh.(1000,000) 650,000 300,000 300,000 100,000
Y sh.(1000,000) 350,000 350,000 350,000 350,000
Required
Calculate for each projects:
2
i. Pay back period(PBP) (5 Marks)
ii. Net Present Value (NPV) (5 Marks)
iii. Internal Rate of Return(IRR) (5 Marks)
In each case state the project to be selected. (5 Marks)
Total (20 Marks)
QUESTION THREE
Discuss the role of Kenya capital market authority (20Marks)
QUESTION FOUR
a) Explain the five assumptions of economic order quantity (EOQ) (5 Marks)
b) Define working capital policy. (2 Marks)
c) State the cash conversion cycle equation (3 Marks)
d) From the following information calculate the cash conversion cycle for the year 2011.
i. Annual inventory sh. 270m
ii. Annual cost of sales sh.1230m
iii. Annual accounts receivables sh. 180m
iv. Annual accounts payables sh. 30m
v. Annual credit sales sh. 1500m
vi. Annual credit purchases sh. 1230m
(10 Marks)
(Total 20 Marks)
QUESTION FIVE
a) Briefly explain the three theories of valuation of securities in business finance. (6 Marks)
b) (i) KCA University’s earning growth rate over the planned six years is estimated to be 10% and the
dividend payout ratio is 60%. The ending price earning ratio is expected to be 20 and the current
earning per share are sh.4 and required rate of return is 15%.
Required
i. Compute market price per ordinary share (4 Marks)
ii. James Kamau is holding a 5 year 10% sh. 1000 debenture, determine the value of this
debenture if the cost of capital is:
a) 10% b) 8% c) 12% (6 Marks)
c) Explain the concept of the term structure of interest rates. (4Marks)
(Total 20Marks)
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