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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:2009
1
UNIVERSITY EXAMINATIONS: 2008/2009
SECOND YEAR STAGE 3 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 202: FINANCIAL MODELLING AND FORECASTING
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) Explain why an analyst should consult all the stakeholders when constructing a model for
financial forecasting ( 3 Marks)
b) Discuss the pitfalls of time series forecasting ( 3 Marks)
c) Identify the merits and demerits of computerized forecasting ( 6 Marks)
d) Discuss the components of a cashflow statement ( 3 Marks)
e) Discuss the importance of a cashflow forecast (5 Marks)
Davis, the analyst for Karioko Industries, needs to construct a model for forecasting the level of sales
given the advertising budget. He has been provided with the data below.
Month Advertising Sales
1 95 85
2 85 95
3 80 70
4 70 65
5 60 70
Required : use the regression model to come up with a model for estimating sales. (10 Marks)
2
QUESTION TWO.
a) Q ltd furnishes the following forecast for the quarter ending 31st March 2003.
Sales : January kshs 1,200,000
February Kshs 1,100,000
March Kshs 1,400,000
During the month of December of the previous year, the company made a sale of khs
1,000,000 and computed the Cost of sales as under:
Raw materials Kshs 350,000
Wages Kshs 175,000
Overheads (variable) Kshs 175,000
Overheads ( fixed) Kshs 150,000
The fixed overheads include depreciation of Kshs 40,000
One fifth of the sales is for cash on which a cash discount of 1.5% is allowed. Of the
remaining portion 50% is collected in the same month and the balance in the next month. Raw
materials suppliers allow a credit of one month. Wages are paid on the last working day of the
month to which they relate. While variable overheads are paid in the next month, fixed
overhead expenses are met in the same month . Interest on term loans of kshs 350,000 is paid
in January 2003.
The percentage of contribution to sales as obtained in December last year is expected to be
maintained during the forthcoming quarter also. The cash balance on 1st January ,
2003 is kshs 50,000. The company has to pay a sum of kshs 60,000 as installment of arrears
of wages in march 2003 and the bank will debit quarterly interest of kshs 400,000 on drawing
in march 2003.Prepare a cash budget showing the cash position for each of the three months of
the quarter ending march 2003. (15 Marks)
b) Discuss the components of a master budget ( 5 Marks)
3
QUESTION THREE
a)
Alison Inc
Income Statement
For the Year Ended December 31,19xx
KSHS KSHS
Net sales 900,000
Dividend Revenue 3,000
Intrest Reveneu 6,000
gain in sale of plant assets 31,000
Total revenu and Gains 940,000
Costs, expenses and losses
cost of goods sold 500,000
Operating expenses ( including depreciation
40,000 300,000
Interest income 35,000
Income tax expenses 36,000
Loss on sale of Marketable securities 4,000
Total costs , expenses and losses 875,000
Net Income 65,000
4
Alison Inc
Comparative balance Sheets
Current Year
Assets
End of Year
Dec 31
Beginning of
year
Cash and Market equivalents 55,000 20,000
Marketable Securities 85,000 64,000
Notes Receivable 17,000 12,000
Accounts receivable 110,000 80,000
Accrued Interest Receivable 2,000 3,000
Inventory 100,000 90,000
Prepaid Expenses 4,000 1,000
Total Current assets 373,000 270,000
Plant and equipment ( accumulated
depreciation 616,000 500,000
Total Assest 989,000 770,000
Liabilities and Stock Holders equity
Notes payable ( short term) 45,000 55,000
Accounts payable 76,000 61,000
Interest payable 22,000 15,000
Income taxes payable 8,000 10,000
Other accrued expenses payable 3,000 9,000
Total Current liabilities 154,000 150,000
Longterm Liabilities
Notes payable ( longterm) 40,000 -0-
Bonds Payable 400,000 300,000
Total liabilities 594,000 450,000
Stock holders Equity
Capital Stock 60,000 50,000
Additional Paid in Capital 140,000 100,000
Retained Earnings 195,000 170,000
Total Stock Holders Equity 395,000 320,000
Total Liabilities and stock holders equity 989,000 770,000
Required:
b) Prepare a cash flow statement for the year (5 Marks)
c) Discuss the uses of cashlow projection ( 5 Marks)
5
QUESTION FOUR
a) The table below shows the demand for a particular brand of fax machine in a department store
in each of the last twelve months.
Month 1 2 3 4 5 6 7 8 9 10 11 12
Demand 12 15 19 23 27 30 32 33 37 41 49 58
i. Calculate the four month moving average for months 4 to 12. What would be your
forecast for the demand in month 13? ( 4 Marks)
ii. Apply exponential smoothing with a smoothing constant of 0.2 to derive a forecast for
the demand in month 13. ( 3 Marks)
iii. Which of the two forecasts for month 13 do you prefer and why? ( 2 Marks)
b) Discuss the components of a master budget ( 10 Marks)
QUESTION FIVE
Johnson , a fianacial analyst at Care Ltd wants to estimate the relationship between sales , advertising ,
and price. He is presented with the data on the table below.
Sales 64 71 53 67 55 58 77 57 56 51 76 68
Advertising 57 59 49 62 51 50 55 48 52 42 61 57
Price 8 10 6 11 8 7 10 9 10 6 12 9
Required:
i) Find the least Squares regression equation of sales , advertising , and price. ( 15 Marks)
ii) Estimate the sales when price is kshs 9 while advertising is 54 ( 5 Marks)
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