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Cfm 202-F: Financial Modeling And Forecasting Question Paper
Cfm 202-F: Financial Modeling And Forecasting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
1
UNIVERSITY EXAMINATIONS: 2008/2009
SECOND YEAR STAGE III EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 202-F: FINANCIAL MODELING AND FORECASTING (SATURDAY)
DATE: AUGUST 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
i) Tom is interested in conducting a regression analysis and he has relised that the error term in a
regression analysis needs some assumptions. Explain some assumptions concerning the error
term (4 Marks)
ii) The following the following information about the coefficient, standard error, t-test, and pvalue
for the regression of PRICE on AGE.
Coeff. Std Error t Stat P-value
Intercept 340068.922 99308.865 3.424 0.002
AGE -935.287 1692.169 -0.553 0.586
Required:
Interpret the above (4 Marks)
iii) For the variables listed below, conducted a regression analysis and determine the relationship
between sales and price (10 Marks)
Sales price
54 7
65 6
2
72 3
83 1
iv) Discuss the process of model implementation using the box Jenkins process ( 5 Marks)
v) Discuss the components of a master budget ( 7 Marks)
QUESTION TWO
The following is a balance sheet and income statement for mwangi inc .
Balance Sheet ($ in Millions)
Assets 1999 Liabilities and
Owners' Equity
1999
Current Assets Current Liabilities
Cash 200 Accounts Payable 400
Accounts Receivable 400 Notes Payable 400
Inventory 600 Total Current
Liabilities
800
Total Current Assets 1200 Long-Term Liabilities
Long-Term Debt 500
Fixed Assets Total Long-Term
Liabilities
500
Net Fixed Assests 800 Owners' Equity
Common Stock ($1
Par)
300
Retained Earnings 400
Total Owners' Equity 700
Total Assets 2000 Total Liab. and
Owners' Equity
2000
3
Income Statement ($ in Millions)
1999
Sales 1200
Cost of Goods Sold 900
Taxable Income 300
Taxes 90
Net Income 210
Dividends 70
Addition to Retained Earnings 140
The percentages for the balance sheet items as a percentage of sales is given below:
Cash is 16.7% of sales, inventory 50% , accounts payable 33.33% , costs 75%, net income 17.5% and
dividends 33.33%.
Required: Prepare a projected balance sheet and income statement for the year 2000 ( 20 Marks)
QUESTION THREE
XYC ltd operates several retail stores in the Mount Kenya Region. It needs to expand it inventory to
accommodate the increasing demand for its services. You have been assigned to forecast sales for the
16th week. The data is provided below
Time Weekly sales
1 654
2 658
3 665
4 672
5 673
6 671
7 693
8 694
9 701
10 703
4
11 702
12 710
13 712
14 711
15 728
16
Required:
i) Conduct a three week moving average (6 Marks)
ii) Conduct a double moving average (6 Marks)
iii) On the basis of the above two, moving averages, forecast the sales for the 16th week
(12 Marks)
QUESTION FOUR
Kosoiwo international has provided you with the information below
Sales Advertising expense price
75 16 1.85
83 20 1.25
85 25 1.5
85 27 1.75
92 32 1.15
97 48 1.75
99 48 1.6
Required:
Using the multi regression analysis formulate an equation linking sales, advertising expenses and price
(20 Marks)
5
QUESTION FIVE
i) ABC company wants to use the management information system (MIS) for forecsting. Discuss
the advantages, challenges of this approach ( 6 Marks)
ii) Given the 2008 income statement and 2008 & 2007 balance sheet below, prepare a cash flow
statement using the indirect method. (14 Marks)
2008 2007 2008 2007
Cash 5,100 4,400 Accounts Payable 7,600 6,800
Accounts Receivable 10,600 11,700 Wages Payable 2,100 2,500
Inventory 9,300 9,000 Taxes Payable 700 500
Prepaid Rent 500 400 Long-term Loan 18,000 16,800
Property & Equip 43,000 39,000 Common Stock 10,000 9,500
Accum Deprec. (12,000) (11,000) Retained Earnings 18,100 17,400
Total Assets 56,500 53,500 Total Liab & OE 56,500 53,500
Income Statement
Sales 127,000
Cost of Goods Sold (85,000)
Gross Profit 42,000
Less Operating Expenses:
Depreciation Expense (1,000)
Rent Expense (6,000)
Wage Expense (28,000)
Operating Income 7,000
Interest Expense (1,200)
Net Income Before Taxes 5,800
Income Tax Expense (2,400)
Net Income 3,400
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