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Tour 711: Finance Management Question Paper
Tour 711: Finance Management
Course:Masters Of Tourism Management
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
EXAMINATION FOR THE AWARD OF
MASTERS OF TOURISM MANAGEMENT
TOUR 711: FINANCE MANAGEMENT
STREAMS: TIME: 3 HOURS
DAY/DATE: FRIDAY 16/8/2013 8.30 AM- 11.30 AM
INSTRUCTIONS:
ANSWER ALL QUESTIONS
QUESTION ONE
(a) You are the Managing director of Tourism Hotel Management and currently in the process of recruiting a finance manager for the hotel. Explain the key functions that the finance manager will be required to undertake to ensure the smooth operation of the hotel. [6 Marks]
(b) Pazuri group of companies has a policy of paying a constant amount of dividend of sh 5 to its shareholders every year. The ordinary shareholders of the company require a minimum return of 8 percent
Required:
Determine the current value of the company’s shares. [3 Marks]
(c) A company in Hospitality industry is considering whether to accept one of two mutually exclusive investment projects. Each project involves an immediate cash outlay of sh 200 million. The company’s finance director estimates that the net cash inflows from each project will be as follows:
Project X Project Y
Sh. Million Sh. Million
Net Cash flows at the end of:
Year 1 120 20
Year 2 80 40
Year 3 60 220
The company’s cost of capital is 10 percent.
Required:
The Net Present Value (NPV) of each project and decision of which project to be selected. [6 Marks]
QUESTION TWO
(a) Leisure tourist Hotel is intending to expand its accommodation facilities. The organization has decided to issue a bond instead of ordinary shares in order to raise funds to facilitate the expansion programme. Outline the advantages of employing the debt instead of equity capital as a source of funds for the organization. [5 Marks]
(b) The following is the capital structure of Transworld Hotel, a company listed on the Nairobi Securities Exchange (NSE) as at 31st December 2012.
Sh. M
Ordinary share capital Sh. 10 par value 400
Retained earnings 200
10% preference share capital Sh.20 par 100
12% debentures Sh.100 par value 200
900
===
The following additional information is also available.
1. Preference shares and debentures are selling at par value
2. Currently the firm has been paying dividend per share of sh.5. The DPS is expected to grow at 5% p.a in future. The current market price share is Sh.40
3. The company is in the 30% tax bracket.
You are the General Manager of the hotel and you direct that the following be provided:
(a) Cost of Equity [2 Marks]
(b) Cost of preference capital [2 Marks]
(c) Cost of debt [2 Marks]
(d) The company’s overall cost of capital [4 Marks]
QUESTION THREE
(a) Briefly explain the importance of working capital management to a firm in the hospitality industry. [5 Marks]
(b) A company has annual sales revenue of sh.100 million. Purchases are equal to 70% of sales revenue. On average 80% of sales and purchases are on credit while the 20% is in cash. For the year ending 31st December 2012. The following data was extracted from the statement of financial position.
Sh ‘000’ Sh ‘000’ Sh ‘000’
Fixed Assets 55,000
Current Assets
Stock 12,000
Debtors 10,000
Cash 5,000_
27,000
Current Liabilities
Trade creditors 8,000
Accrued expenses 5,000
Bank overdraft 10,000 23,000 4,000_
Net Assets/Capital employed 59,000
=====
The cost of sales for the year amounted to Sh. 75m
Required:
(i) Assuming 365 days in a year, compute the following ratios and give its relevance
(a) Stock turnover [2 Marks]
(b) Fixed Assets turnover [2 Marks]
(c) Debtors turnover [2 Marks]
(d) Creditors’ turnover [2 Marks]
(ii) The working capital cycle. [2 Marks]
QUESTION FOUR
(a) Outline the features of a sound investment appraisal technique [4 Marks]
(b) Clearly distinguish between the following terms as used in a financial system
(i) Money Market and Capital Market
(ii) Primary Market and Secondary Market
(iii) Intermediation and disintermediation [6 Marks]
(c) Explain briefly the factors that are considered when establishing a dividend policy for an organization by its directors. [5 Marks]
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