Get premium membership and access revision papers, questions with answers as well as video lessons.

Fina 432: Financial Corporate Policy Question Paper

Fina 432: Financial Corporate Policy

Course:Accounting,Finance And Investiments

Institution: Kenya Methodist University question papers

Exam Year:2013

KENYA METHODIST UNIVERSITY
END OF 2''ND ''TRIMESTER 2013 (DAY) EXAMINATION
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : ACCOUNTING, FINANCE AND INVESTMENTS
UNIT CODE : FINA 432
UNIT TITLE : FINANCIAL CORPORATE POLICY

TIME: 2 HOURS
INSTRUCTIONS
Answer question one and any other two questions
Question One
Giving relevant examples, discuss at least eight principles of good corporate governance
(16 Marks)
Outline the factors determining capital structure decisions.
(10 Marks)
Describe the management decisions function of a CFO
(4 Marks)
Question Two
Company A and B are in the same risk class are identical in every respect except that company A is geared while B is not. Company A has 6 million in 5% bonds outstanding. Both companies earn 10% before interest and taxes on their ksh.10 million total assets. Assume perfect capital markets, rational investors, a tax rate of 60% and a capitalization rate of 10% for an all equity company
Required:
Compute value of firms A and B using the net income (NI) approach and net operating income (NOI) approach
(10 marks)
Using the NOI approach, calculate the after tax weighted average cost of capital for firms A and B. which of these firms has the optimal capital structure according to NOI approach? Why?
(10 marks)
Question Three
Briefly describe the MM theory clearly outlining its assumptions. (10 marks)
How are corporate taxation and personal taxation incorporated in MM theory?
(10 marks)
Question Four
Describe the arbitrage process
(10 marks)
Briefly outline the pecking order theory of capital structure
(10 marks)
Question Five
Briefly outline factors determining the dividend decisions of a firm
(10 marks)
Describe the following theories of dividend
Dividend irrelevancy theory
Active theory of dividends
Residual theory
(10 marks)

Fina 432: Financial Corporate Policy Question Paper

More Question Papers

Popular Exams