Business Finance Ii Question Paper

Business Finance Ii

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

KENY ATT A UNIVERSITY
UNIVERSITY
EXAMINATIONS
2008/2009
SECOND SEMESTER
EXAMINATION
FOR THE DEGREE OF BACHELOR
OF COMMERCE
BAC 204:
BUSINESS FINANCE II
DATE: Wednesday, 16th September, 2009
TIME: 11.00 a.m. - 1.00 p.m.
INSTRUCTIONS:
Answer ALL questions.
"
Question 1:
a)
"The function of business finance is to review and control decisions to commit or
recommit funds to new or ongoing uses. Thus in addition to raising funds,
business finance is directly concerned with production, marketing and other
functions within an enterprise whenever decisions are made about the acquisition
or destruction of asset". Discuss.
(8 marks)
b)
The initial cast outlay of a project is Ksh. 50000 and it generates cash inflows of
Ksh. 20000, Ksh. 15000, Ksh. 25000, and Ksh. 10000 in four years. Using
present value index method, appraise profitability of the proposed investment
assuming 10% rate of discount.
(7 marks)
.:
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.•
Question 2:
a)
A company called Leghari projects is considering the following projects:
Projects
Cash outflow
Cash Inflows
1st Year
IInd Year
IIIrd Year
A
10000
10000
-
-
B
10000
7500
7500
-
C
10000
2000
4000
12000
D
10000
10000
3000
3000
a)
Rank the projects according to each of the following methods:
i)
Payback period
(5 marks)
ii)
Accounting rate of return
(5 marks)
iii)
Net present value assuming discount rate of 10% and 30%
(5 marks)
b)
Assuming that projects are independent, which project should be accepted?
If the
projects are mutually exclusive, which project is the best?
(5 marks)
Question 3:
a)
"An investor gains nothing from bonus shares".
Examine the statement critically.
(5 marks)
b)
Explain any FOUR critical determinants of working capital level.
(5 marks)
c)
Discuss the concept of profit maximization
Vs Wealth maximization.
(5 marks)
Question 4:
As a finance advisor, Chalanga Inc. has approached you to help in calculating for the
company the level of EBIT at which the indifference point between the following
alternatives will occur:
a)
Ordinary share capital Ksh.l 000,000 or 15% bonds ofKsh.500,000
and ordinary
share capital of Ksh.500,000.
(5 marks)
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. .

..
.
b)
Ordinary share capital of Ksh.l 000000 or 13% preference share capital of
::
Ksh.500,000 and ordinary share of Ksh. 500000.
(5 marks)
c)
Ordinary share capital of Ksh. 600000 and 15% debentures of Ksh.400000 or
ordinary share capital of Ksh. 400000, 13% unit preference share capital of Ksh.
200000 and 15% debentures of Ksh.400000.
d)
Ordinary share capital ofKsh. 800000 and 13% preference share capital of
Ksh.200000 or ordinary share capital of Ksh.400000, 13% unit preference share
capital of Ksh.200000 and 15% debentures of Ksh.400000.
(5 marks)
Assume that the corporate tax is 50 per cent and the price of the ordinary share is
Ksh.l0 in each case.
END
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