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Financial Modelling And Forecasting Question Paper
Financial Modelling And Forecasting
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2010
EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
FINANCIAL MODELLING AND FORECASTING
DATE: APRIL 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer Question ONE and Any other TWO Questions
QUESTION ONE
a) Discuss the essential features of a forecasting system in an organization (5 Marks)
b) State and explain the four fundamental components of normative models (5 Marks)
c) The KRA has recorded the following revenue collected from ser vice fees in its premier
department for the last four years:
Year/ Quarter One
(Ksh.000,000)
Two
(Ksh.000,000)
Three
(Ksh.000,000)
Four
(Ksh.000,000)
2006 - - 173 183
2007 194 236 284 308
2008 321 351 417 425
2009 436 474 - -
Required:
Using a three quarter moving trend in a multiplicative model, compute the service revenues
expected from this department in each quarter of year 2010 (20 Marks)
2
QUESTION TWO
There has been hypothesized that a stock exchange share index is related to the remittances from
citizen in the Diaspora. The bureau of statistics has therefore collected the following information over
the last ten months.
Month 1 2 3 4 5 6 7 8 9 10
Share Index
(000,000)
15 24 25 30 35 40 45 65 70 75
Remittances
(000,000)
60 45 50 35 42 46 28 20 22 15
Required:
a) Using suitable computations, explain the nature of relationship that exist between the stock
exchange share index and the remittances (15 Marks)
b) Discuss how the bureau of statistics can use the Delphi technique to forecast the remittances
from the Diaspora in the next one year (5 Marks)
QUESTION THREE
Using suitable illustrations, explain how the following techniques can be applied in financial
forecasting:
a)Lead lag Analysis (4 Marks)
b)Historical analogy (4 Marks)
c)Business barometers (4 Marks)
d)Interpolation (4 Marks)
e)Extrapolation (4 Marks)
3
QUESTION FOUR
Systems Limited’s 2009 and 2009 Balance sheets include the following items:
December 31
2009 2008
Sh Sh
Cash 91,000 47,700
Accounts receivable 49,400 60,500
Merchandise inventory 303,000 326,800
Prepaid expenses 11,400 12,800
Equipment 185,500 144,000
Totals 640,300 591,800
Credits
Accumulated depreciation, equipment 72,500 62,000
Accounts payable 78,300 82,300
Short-term notes payable 11,500 7,500
Long-term notes payable 75,000 55,000
Ordinary share capital of sh.5 par value 310,000 300,000
Share premium 12,000 0
Retained earnings 81,000 85,000
Totals 640,300 591,800
Additional information about the 2009 activities of the company as follows:
Sh Sh
a) Sales revenue, all on credit 722,000
b) Cost of goods sold 390,000
c) Depreciation expense 24,400
d) Other expenses 261,900
e) Income taxes expense 6,300
f) Loss on sales of equipment 1,400 684,000
g) Net income 38,000
4
h) Equipment that cost sh.75, 500 was purchased by paying cash of sh.25, 500 and by signing a
long-term note payable for the balance.
J) Declared and paid cash dividends of sh.42, 000.
K) The equipment sold had cost sh.34, 000 and had been depreciated by sh.13, 900.
Required:
a) Prepare a statement of cash flows that reports the cash inflows and outflows from operating
activities according to the direct method. Show your supporting calculations (20 Marks)
QUESTION FIVE
You are a renowned financial analyst and you have been approached by the central Bank to assist them
in a study on the factors that influence the probability of default on small business loans by a potential
borrower. The assignment will culminate into developing a credit scoring model that encompasses the
attributes of Character, ability to borrow, Margins, Purpose, Amount, Repayment Period and
Insurance. Discuss how you will undertake this exercise. (20 Marks)
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