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Cfm 201: Financial Planning And Control (Weekend Class) Question Paper
Cfm 201: Financial Planning And Control (Weekend Class)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
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UNIVERSITY EXAMINATIONS: 2008/2009
SECOND YEAR STAGE III EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 201: FINANCIAL PLANNING AND CONTROL (WEEKEND CLASS)
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
(a) Support the argument that cost of capital is a crucial aspect in investment appraisal.
(10 Marks)
(b) The Country Director, World-vision Kenya, was noted having his opening remarks in a
planning, programming, budgeting conference as follows:-
“It is only possible to achieve the overall objectives of an organization if their is strict
adherence to the PPB guidelines”. Comment. (10 Marks)
(c) A 7-year Ksh. 100 debenture of a firm can be sold for net price of sh. 97.75. The rate of
interest is 15% per year, and the bond will be redeemed at 5% premium on maturity. The
firm’s tax rate is 35%.
Required:
Compute the after tax cost of debenture. (10 Marks)
QUESTION TWO
(a) Raphael has very basic knowledge with regard to methods of appraising investments. Why
would he prefer payback period to profitability index. (6 Marks)
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(b) Outline the formulae determination of irredeemable preference shares, and comment the
position of KP as regards tax adjustment. (4 Marks)
(c) National Electronics limited, an electronic goods manufacturing company, is producing a large
range of electrical goods. It has under consideration two projects ‘x’ and ‘y’, each costing Ksh.
120 million. The projects are mutually exclusive and the company is considering the question
of selecting one of the two.
Cash flows have been worked out for both the projects and the details are as given below.
Project x has a life of 8 years and y has a life of 6 years. Both projects will have zero salvage
value at the end of their operating lives. The company is already profitable an dits tax ra te is
50%: While the cost capital of the firm is 15%. The company follows straight line method of
depreciating assets.
At the end of the
year
Project x
Ksh. ‘000,000
Project Y
Ksh. (millions) Ksh.
Present value
(at 15%)
1 25 40 0.870
2 35 60 0.756
3 45 80 0.685
4 65 50 0.572
5 65 30 0.497
6 55 20 0.432
7 35 - 0.372
8 15 - 0.327
Required: Advise the company on which project to select. (10 Marks)
QUESTION THREE
(a) In optimizing the benefits of divisionalized companies, the management should eliminate
certain bottlenecks. Discuss. (6 Marks)
(b) Differentiate between the following terms:
i) Cost and Revenue centers. (2 Marks)
ii) Profit center and investment centers. (2 Marks)
(c) In standard costing, levy time variance helps in controlling efficiency of workers. Present your
reasons. (5 Marks)
(d) In planning process, the broad purpose and reason for an organization’s existence is crucial.
Discuss mission, corporate and unit objectives. (5 Marks)
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QUESTION FOUR
(a) Dividends on preference capital of XYZ company limited has not been paid for the last 10
years. What is the implication of such? (10 Marks)
(b) A company has a cash balance of 27,000 at the beginning of March. On thorough analysis of
data presented, you discover the following:
i) Creditors give 1 month credit.
ii) Salaries are paid in the current month.
iii) Fixed costs are paid one month in arrears and include a charge for depreciation
of £ 5000 per month.
iv) Credit sales are settle as follows:
40% in month of sale; 45% in next month and 12% in the following month the
balance represents bad debts.
You are required to prepare a cash budget for March, April and May having regard to the
above information as well as the additional set below:
Month Cash sales Credit sales Purchases Salaries Fixed
overheads
(£) (£) (£) (£)) (£))
Jan - 74,000 55,200 9,000 30,000
Feb - 82,000 61,200 9,000 30,000
March 20,000 80,000 60,000 9,500 30,000
April 22,000 90,000 69,000 9,500 32,000
May 25,000 100,000 75,000 10,000 32,000
(10 Marks)
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