Entrepreneurial Finance Question Paper

Entrepreneurial Finance

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION

BAC 604:
ENTREPRENEURIAL FINANCE
=================================================================
DATE: TUESDAY 24TH NOVEMBER 2009

TIME: 2.00 P.M. – 5.00 P.M.

INSTRUCTIONS
Answer Question One and Any other Three Questions
All Questions carry equal marks

Q.1
Three years ago a young enterprising Kenyan set up a venture to pursue an idea on

the use of renewable energy. Although he approached several commercial banks, he

was unable to convince them on the viability of the new idea. Convinced of the

viability of the idea, he was not discouraged and eventually he was able to mobilize

his own financial resources which he used as his start up capital. At the beginning of

the current financial year, the venture’s assets were estimated at Kshs 12 mn all of

which were financed with his own money. The sales for the year are Kshs 12 mn

and the distributable income for the year is Kshs 2.5 mn.

a)
Using the Sustainable Growth Model, compute the return on equity of the

entrepreneur’s investment in the
venture.
(5
marks)

b)
In order to improve the rate of growth of the venture the entrepreneur had decided

right from the start to retain 80% of the ventures distributable income within the
Page 1 of 2

venture. Using the Sustainable Growth Model, determine the growth rate in
equity
of
the
venture.
(6
marks)

c)
In order to improve the bottom line the entrepreneur has decided to change the capital

structure by employing 50% debt. He can raise the necessary capital at a cost of 15%

annually. The venture, being set up as a corporation, pays tax at the rate of 30%. The

operating income (or earnings before interest and tax) of the venture for the current

year is Kshs. 9 million. Determine the venture’s distributable profit under the new
financing
arrangement. (6
marks)

d)
If under (c) above the retention rate of profit remains unchanged, what is the growth

rate in equity of the entrepreneur? What is the effect of using debt capitals on the
venture’s
equity
growth
rate?
(8
marks)

Total 25 marks

Q.2
Explain the process involved in the formation of a new venture.

(25 marks)

Q.3 Discuss any ten sources of new venture financing that are available to an

entrepreneur and the stages where each is most appropriate.

(25 marks)

Q.4
Discuss the areas that are most appropriate to include in a business plan to be used for
attracting
outside
investment.
(25
marks)

Q.5
Discuss the cash flow cycle of a business
venture.
(25
marks)

Q.6
a)
What do you understand by franchising?

(3 marks)

b)
Identify the advantages and disadvantages of franchising to both the
franchisee
and
the
franchiser.
(22
marks)

Total 25 marks

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