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Fina 023: Financial Management Question Paper
Fina 023: Financial Management
Course:Accounting,Finance And Investiments
Institution: Kenya Methodist University question papers
Exam Year:2013
KENYA METHODIST UNIVERSITY
END OF 2''ND ''TRIMESTER 2013 (EVENING) EXAMINATION
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : ACCOUNTING, FINANCE AND INVESTMENTS
UNIT CODE : FINA 023
UNIT TITLE : FINANCIAL MANAGEMENT
TIME: 2 HOURS
INSTRUCTIONS
Answer question one and any other two questions
Question One
Explain the financial management functions
(12 Marks)
Give four types of capital expenditure decisions
(4 Marks)
Outline characteristics of capital budgeting decisions
(4 marks)
Atati ltd has two projects proposals, the initial capital outlay is 1.5 million and expected cash flows are given below
Year Cash inflows Cash outflows
Shs. Shs.
1 85,000 70,000
2 730,000 80,000
3 900,000 60,000
4 1,100,000 50,000
5 1,200,000 70,000
Depreciation is on straight line method and scrap value is nil, cost of capital and the tax rate is 12% and 30% respectively
Required
Compute the NPV and payback period of two projects respectively
(9 Marks)
Advise the management of Atati ltd
(1 mark)
Question Two
KeMU Ltd was incorporated to manufacture cement, it has the following capital structure in market value terms
Shs.
200,000 ordinary shares 4,000,000
Preference shares 12% 1,000,000
Debentures 3,000,000
Total 8,000,000
Additional Information
The required rate of return on equity is 12%
The new company’s debt is yielding 12%
Preference shares yield is also 12%
Required:
Calculate the weighed average cost of capital
(10 marks)
Explain factors that influence the working capital needs of a company
(10 marks)
Question Three
Identify basis of classification on preference shares and explain the two types of preference shares under each classification (20 marks)
Question Four
Critique the goal of profit maximization
(10 marks)
A 10 year Ksh.100 debenture of a firm can be sold for a net price of Kshs.95 the coupon rate of interest is 15% yearly and the bond will be redeemed at 5% premium on maturity. The firm’s tax rate is 35%. Compute the after tax cost of debenture
(10 marks)
Question Five
Explain the agency theory and at least five causes of conflict between shareholders and management
(10 marks)
Explain the meaning of the following investment concepts
(10 marks)
Time value of money
Accounting rate of return
Highly geared
Net present value
Payback period
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