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Financial Management Question Paper

Financial Management

Course:Mba

Institution: Kabarak University question papers

Exam Year:2010

INSTRUCTIONS:
1. Answer question ONE and any other THREE questions
2. Write your registration number clearly, be neat, brief and show all your workings

Question 01
(a) Give a critical analysis of the development of financial management. (8 marks)
(b) Estimate a beta of an enterprise without gearing and has a beta of 1.51, proportion of debt-to-
equity or B/S ratio and a tax rate bracket of 40 percent. (6 marks)
(c) Discuss any 5 uses of Du Pont system in financial analysis. (10 marks)
(d) Assume that Mwalolo Enterprise Ltd sells a 1000 KES bond that matures in 20 years.

The annual interest payments are Ksh. 90 and the net proceeds of the bond are Ksh. 957.
Using the correct formula and the above given data estimate the before-tax-cost of bond.
(6 marks)
Question 02
(a) Suppose an investor is given a real estate investment opportunity that will provide a future
value of Kshs 50,000 when it is completed and sold at the end of two years. How much
would an earning of Kshs 50,000 in 10 years worth to the investor now? (5 marks)

(b) Describe 5 types of bonds that are used by corporate entities in sourcing for funds.(5 marks)

Question 03
(a) Describe the phrase standard deviation. (2 marks)
(b) Below is data from two projects meant for investment
Expected Cash flow Standard deviation
Swimming pool 75,000 KES 17,888 KES
Washing Machine 390,000 KES 80,000 KES
Use the above data to identify the more or less risky project between the two by estimating
the coefficient of variation for each project and then advise the management accordingly.
(8 marks)

Question 04
(a) Consider the following data of Enterprise XYZ Limited, fixed cost is 50,000 Ksh. price per unit is
10 Ksh and variable cost per unit is 5 Ksh. Use the above given data and the correct expression to
establish the break-even quality of the enterprise and advise the management accordingly.
(4 marks)

(b) From question 4 (a) all other factors remaining the same, further assume that the selling price
increases from Ksh. 10 to Ksh 12 per unit.
Use the above given data to estimate the new Break-Even Quantity and describe the sensitivity use
of algebraic approach (6 marks)
Question 05
(a) Using an illustration describe a foreign exchange market. (4 marks)
(b) Differentiate between indirect and direct foreign exchange transactions.
(6 marks)

Question 06
(a) As a financial expert you have been approached to train newly recruited employees of
Salama Enterprise Ltd. Discuss with them the use of debentures and zero coupon bonds in
search for extra funds. (8 marks)
(b) On the same note, explain to them what a convertible security is and its applicability.
(2 marks)

Financial Management Question Paper

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