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Agec 242: Agriculture Finance Question Paper
Agec 242: Agriculture Finance
Course:Bachelor Of Science In Agricultural Economics
Institution: Chuka University question papers
Exam Year:2017
SECOND YEAR EXAMINATION FOR THE
AWARD OF THE DEGREE OF BARCHERLOR OF
SCIENCE IN AGRICULTURAL ECONOMICS
AGEC 242: AGRICULTURE FINANCE
STREAMS. : AGEC, NARE. TIME: 2 hrs
DAY/DATE; WEDNESDAY 19/4/2017. 11:30AM - 1:30 P.M
INSTRUCTIONS
. Answer ALL questions in section A and Two questions in section B
. Answer each question on separate pages.
SECTION A
QUESTION ONE
(i) Succinctly discuss significance of Agricultural finance and its contribution to economic development. ( 8 Marks)
(ii) Discuss the following sources of agricultural finance.
(a) Merchant Banks (3 Marks)
(b) Development banks (3 Marks)
(iii) Discuss the classification of credit on the basis of:
(a) Time (3 Marks)
(b) security (3 Marks)
(c) Lenders (3 Marks)
(d) Borrowers (3 Marks)
(iv) Suppose you deposit 10,000 kshs in a bank today and you wish to purchase firm equipment 5 years from today. How much will you receive from the bank if the rate of interest is 15 per cent at the end of 5 years? (4 Marks)
SECTION B
QUESTION TWO
(i) Discuss the 5Cs of credit that must be considered in lending. (5 marks)
(ii) A company is considering the following investment projects:
Project project C1 C2 C3
A -10,000
B -10,000 7500 7500
C -10,000 4000 6000 12000
D -10,000 10,000 4000 4000
(a) Rank the project according to each of the following methods, IRR and NPV , assuming a discount rate of 10 and 20 percent. (10 Marks)
(b) Assuming the projects are independent, which one should be accepted? If the projects are mutually exclusive, which project is best? (5 marks)
QUESTION THREE
(i)
(a)
Assuming that you are appointed by Equity bank, as an Agricultural finance officer, briefly discuss the procedures that you will follow while sanctioning farm loans. (7 Marks)
(b) Discuss how you will manage risks as Agricultural Finance Officer above. ( 6 Marks)
(ii)
Explain the factors that you would consider in sourcing funds for an agricultural based enterprise. ( 7 Marks)
QUESTION FOUR
(i) Assume a firm that used various sources of capital. Borrowed money with 10% interest attached, preference shares (raised through IPO) whereby the dividends rate is 15% and retained earnings from ordinary shareholders with foregone dividend rate initially declared as 30%. What should be the cost of capital for such an investment whose total capitalization is estimated at 5 million with 2 million sourced from borrowing, 1.56m sourced from additional IPO of preference shares and the rest sourced from the retained earnings. If the firm investment is expected to last for 5 years and this period the current inflation rate of 5% is expected to change after 3 years from 5% to 6% of the foreseeable future.
Required:
(i) Determine the Weighted Average Cost of Capital (NACK) to be used in capital budgeting.
(7 marks)
(ii) Discuss the key policy concerns that are related to Agricultural finance in the Kenyan context. ( 7 Marks)
(iii) Briefly discuss the financial ratios that an Agricultural credit officer can use to ascertain the financial well-being of an Agricultural enterprise. (6 Marks)
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