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Fnce 220-Business Finance Question Paper

Fnce 220-Business Finance

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2010

KABARAK UNIVERSITY
UNIVERSITY EXAMINATIONS
2009/2010 ACADEMIC YEAR
FOR THE DEGREE OF BACHELOR OF COMMERCE

COURSE CODE: FNCE 220
COURSE TITLE: BUSINESS FINANCE
STREAM: Y2S2
DAY: MONDAY
TIME: 9.00 – 11.00 A.M.
DATE: 02/08/2010

INSTRUCTIONS:
• Answer QUESTION ONE and Any other TWO
Q1. (a) Explain the following methods of investment appraisal
(i) Pay –back period (PBP) 4 marks
(ii) Profitability index 4 marks
(iii)Net present value NPV 4 marks
(b) Sendco ltd is considering two mutually exclusive projects whose details are shown
below
Year project x project y
Cash flow (Kshs) cash flow (Kshs)
1 4,000 6,000
2 4,000 3,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
The company would secure a loan of Ksh 10,000 from Barclays bank at an interest
rate of 10 % p.a.
Required;
For each of the above project –calculate:
(i) Net present value NPV 4 marks
(ii) PAY back period 4 marks
(iii)IRR- internal rate of return 6 marks
Advice the management on which project to undertake and why. 4 marks
(Total 30 marks)

Q2. (a) List and explain seven goals of a business 14 marks
(b) Distinguish between money and capital market 6 marks

Q3. (a) In relation to agency theory discuss how to resolve the potential conflicts arising
between
(i) Share holders and management 7 marks
(ii) Debt holder and share holder 7 marks
(b) What are the advantages of being quoted in the NSE, to a company 6 marks Q4. Peter is considering investing in a corporate bond with possible returns discussed
as follows
State of nature outcome show probability
Pessimistic 300 0.2
Moderately successful 600 0.6
Optimistic 900 0.2
Required;
(i) Determined-the expected return (ED) and standard deviation of the above security
10 marks
(ii) Comment briefly on the above standard deviation as a measure of risk 2 marks
(iii)Give and explain the 3 attribute towards risk 6 marks

Fnce 220-Business Finance Question Paper

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