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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: 2009/2010
SECOND YEAR STAGE 3 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 202:FINANCIAL MODELLING AND FORECASTING
(SUNDAY CLASS)
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ONE and Any other TWO Questions
QUESTION ONE
a) What are the main factors which the validity of using the regression line for forecasting will
depend upon? (5 Marks)
b) Explain the term a spurious correlation (5 Marks)
c) The following table gives the quarterly admission of students at the KCAU for a degree
programme.
Year Quarter 1 2 3 4
2006
2007
2008
2009
194
223
233
251
206
226
241
273
195
210
222
228
249
256
Required:
(i) Using a three quarter moving total and a multiplicative model, forecast the student enrollment
into the course for every quarter of year 2010. (20 Marks)
2
QUESTION TWO:
The monthly electricity bill at the KCAU members club over the past 12 months has been noted as
follows:
Month Amount (Sh.)
December
January
February
March
April
May
June
July
August
September
October
November
30,660
27,190
30,570
30,640
29,730
31,530
29,720
33,070
30,010
27,550
30,130
27,940
KCAU management is considering using exponential smoothing with 0.5 to forecast future electricity
costs.
Required:
a) Determine next one year’s forecasted electricity costs using a twelve month moving total.
(12 Marks)
b) Discuss how historical analogy method and business barometers can be applied in financial
forecasting. (8 Marks)
QUESTION THREE:
a) Briefly describe the components of a time series and the models that are applicable in time
series forecasting (10 Marks)
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b) The Kenya revenue authority is considering forecasting the annual revenues over the next three
year MTEF budgeting period. Describe how they can apply the Delphi technique to undertake
this exercise. (5 Marks)
c) Describe the types of models that are applicable in social sciences (5 Marks)
QUESTION FOUR:
a) You have been interested in pursuing an empirical research study on a predictor model for
successful and non successful small businesses in Nairobi. Outline the procedure that you will
initiate in developing the discriminant model. (10 Marks)
b) Given the following financial performance of Company X as below:
Year/ Item 2008 2007
Balance Sheet
Non Current Assets 8,489,224 4,549,849
Current Assets 89,245,688 62,888,396
Current Liabilities 80,554,266 63,160,644
Non Current
liabilities
4,007,631 867,549
Capital and
Reserves
13,173,015 3,410,052
Income statement
Revenue 118,768,359 69,141,916
Gross profit 29,860,349 18,652,281
Operating profit 13,113,610 7,183,174
Interest 3,606,287 1,663,262
Profit before Tax 9,507,323 5,519,912
Tax 3,319,365 1,755,316
Profit after tax 6,187,958 3,764,596
Required:
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Using the discriminant analysis function of Z' = 0.717T1 + 0 .847T2 + 3.107T3 + 0 .420T4 + 0 .998T5
analyze and predict future financial performance of the company. (10 Marks)
QUESTION FIVE:
The table below shows the number of University graduates and the total costs incurred by the
university till their graduation:
Number of students Total Costs
100 4,000,000
200 4,500,000
300 5,000,000
400 6,500,000
500 7,000,000
600 7,000,000
700 8,000,000
Required:
a) Calculate the correlation coefficient (7 Marks)
b) Calculate the regression line for Cost on number of students and comment on the fixed and the
variable costs (7 Marks)
c) Forecast the total cost for attaining a graduation mark of 1,000 students (6 Marks)
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