Entrepreneurial Finance Question Paper

Entrepreneurial Finance

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
INSTITUTE OF OPEN LEARNING
UNIVERSITY EXAMINATIONS 2008/2009
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 412: ENTREPRENEURIAL FINANCE

DATE: WEDNESDAY, 14TH JANUARY 2009
TIME: 11.00 A.M. – 1.00 P.M.

INSTRUCTIONS:

1.
Answer ALL questions.
2.
Show your work in good form.
3.
Time allowed is two hours.

1.
(a)
Compare commercial bank loans and trade credit as capital sources for new small business concerns.
(b)
Why should interest rates be higher for small firms than large firms? (20 marks)

2.
(a)
What are the principal advantages of the discounted cash flow method as compared to the payback method of evaluating investment opportunities?
(b)
Two entrepreneurial ventures with Sh35,000 initial capital outlay each and promising the following cash flow for year 1 to 5 are given below:

Year
A
B
1
Sh10,000
Sh5,000
2
10,000
15,000
3
10,000
20,000
4
10,000
5,000
5
10,000
5,000

Required:
Use payback method to determine the preferred investment alternative. (20 marks)

3.
(a)
Assuming that rent and purchases each account for the same proportion of sales revenue, which should receive primary attention of the nentrepreneur? Why?
(b)
If a small manufacturer is contemplating a factory expansion, what type of forecasts would be helpful in arriving at a sound decision? (20 marks)

4.
(a)
Describe the major credit-rating factors.
(b)
What is meant by the term 2/10, n/30?
(c)
If a small businessperson has adequate investment to cover all of his/her working capital needs, does it cost him as much to sell on credit as it costs a company that must borrow? Why?
(d)
Explain how “economic order quantities” affect inventory levels.
(e)
Evaluate the policy followed by many small firms that attempt to profit by speculative increases in inventory during periods of rising price?
(20 marks)

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