Get premium membership and access revision papers, questions with answers as well as video lessons.
Dibm 0217: Financial Management Question Paper
Dibm 0217: Financial Management
Course:Diploma In Procurement And Logistics
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
SECOND YEAR EXAMINATION FOR THE AWARD OF
DIPLOMA IN PROCUREMENT AND LOGISTICS MANAGEMENT
DIBM 0217: FINANCIAL MANAGEMENT
STREAM: DIBM Y2S1 TIME: 2 HOURS
DAY/DATE: WEDNESDAY 7/8/2013 11.30 AM – 1.30 PM
INSTRUCTIONS:
ANSWER QUESTION ONE AND ANY OTHER TWO QUESTIONS
1. (a) The changing business environment in the recent past has widened the role of a finance manager. Critically discuss the role of a finance manager in a large business environment. [8 marks]
(b) Within a financial management contact, discuss the problems that might exist in the following relationship and state attempts to minimize such problems.
(i) Shareholders and managers [5 marks]
(ii) Shareholders and creditors [5 marks]
(c) The company’s dividend per share as at 31st December 2001 was shs.5.00. The company’s financial analyst has shown that dividends will grow at 10% for 3 years after which the growth will fall to a constant rate of 8% for the foreseeable future. The analyst also projected a required rate of return of 10% for equity shares of the company. Determine the value of the company’s share as at 31st December 2001. [5 marks]
(d) Explain the need for valuation of shares. [4 marks]
(e) If you wish to have 20,000 shillings five years now. How much should you deposit in a savings account today that pays 8% interest per annum. [3 marks]
2. The following information was extracted from the books of X Y Z Limited.
Shs
Ordinary shares (shs 25 par value 800,000
8% preference shares (sh 24 par value 600,000
10% preference shares ( sh20 par value 400,000
10% Debentures (sh 20 par value 400,000
Retained earnings 200,000
2,400,000
Additional Information
(i) The market price of ordinary shares is shs 31 per share including sh1 as floatation cost.
(ii) The 8% preference shares currently sell at shs 20
(iii) The 10% preference shares were issued four years ago and are currently selling at shs 25 each
(iv) The 10% debentures were issued four years ago and currently sell at sh 25.
Ordinary shareholders expect a dividend of 3.80 per share. The average growth rate in both dividends and earning has been 10% for the past 10 years and this growth is expected to be maintained in a foreseeable future. From the above information
(a) Complete the components cost of capital and the terms weighted average cost of capital. Assume a corporate tax rate of 40%. [12 marks]
(b) Why are investment decisions considered significant by finance managers.
[4 marks]
(c) Why is debt finance considered to be cheaper than equity. [2 marks]
(d) State the difficulties encountered in the use of weighted average cost of capital.
[2 marks]
3. X Y Z Limited has approached you for advice on an equipment to be purchased for use in a 5 year project. The investment will involve an initial cost of 1.4 million and expected cash flows are given below.
Year Cash inflows Cash outflows
1 800,000 65,000
2 750,000 80,000
3 900,000 100,000
4 1,200,000 120,000
5 1,500,000 200,000
The equipment is to be depreciated on a straight line basis over the declaration of the project. The costs of capital and tax rate are 12% and 30% respectively.
Required:
(a) The net present value of the investment and the profitability index of the investment and advise X Y Z on whether it should invest in the project. [12 marks]
(b) Distinguish between compounding and discounting. [2 marks]
(c) State any two merits and demerits of NPV as a method of evaluating investment. [4 marks]
(d) Differentiate between risk and uncertainty. [2 marks]
4. (a) Explain the difference between money markets and capital markets. [4 marks]
(b) Discuss any five determinants of working capital management. [5 marks]
(c) A proforma cost sheet of a company provides the following data.
Costs (per units)
Raw materials 52
Direct labour 19.5
Overheads 39
Total cost (per unit) 110.5
Profits 19.5
Selling price 130
Additional Information:
(i) Average raw material in stock is one month
(ii) Average materials in process is half a month
(iii) Credit allowed by suppliers is one month
(iv) Credit allowed to debtors is two months
(v) Time long in payment of wages is one and half weeks
(vi) Overheads is one month
(vii) One- fourth of sales are on cash basis
(viii) Cash balance is expected to be sh. 120,000
(ix) Finished good in stock is one month
You are required to prepare a statement showing the working capital needed to finance a level of activity of 70,000 units of outputs. You may assume that production is earned on evenly, throughout the year and wages and overheads accrue similarly. [11 marks]
______________________________________________________________________________
More Question Papers
Popular Exams
Return to Question Papers