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Bcf 200: Financial Management Question Paper
Bcf 200: Financial Management
Course:Bachelor Of Commerce
Institution: Kaimosi Friends University College question papers
Exam Year:2017
KAIMOSI FRIENDS UNIVERSITY COLLEGE
2017/2018 ACADEMIC YEAR
THIRD YEAR FIRST SEMESTER EXAMINATIONS FOR THE DEGREE OF BACHELOR COMMERCE
COURSE CODE:BCF 200
COURSE TITLE: FINANCIAL MANAGEMENT
13th December,2017
2 hours
KAFUCO observes ZERO tolerance to examination cheating
Answer question ONE and any other TWO
QUESTION ONE
a. KAIMOSI LTD usually makes cash payments of 20,000per week.The interest rate on marketable securities is 10% a cost of shs.50 is incurred for every security sold.
i. Determine the optimal Amount of marketable securities to be converted into cash every time the company makes a transfer. 3 marks
ii. Determine the total number of transfers from marketable securities to cash per year. 3 marks
iii. Determine the total cost of maintaining the cash balance per year. 3 marks
iv. Determine the firms average cash balance per year. 3 marks
b. A firm is considering buying a modern machine to improve its productivity.The following options exist for this firm's management.
YEAR. MACHINE A. MACHINE B
0 100,000 120,000
1 60,000 50,000
2 40,000 50,000
3 20,000. 50,000
Required:use the information project evaluation methods and advice the firm on which machine to buy.The firm cost of capital is 10%
i. Payback period. 3 marks
ii. Net present value. 6 marks
iii.accounting rate of return. 3 marks
iv. Internal rate of return. 6 marks
QUESTION TWO
a. During the last few decades ,a number of environmental,hiring and other regulatory Changes have been imposed on Businesses.In view of these regulatory Changes,is profit maximization any longer a realistic objective. Discuss. 10 marks
b. ABC company requires 5000 units to manufacture a product .The cost of each unit is shs.100 The lead time is two weeks ,each order costs costs shs.100 and the holding cost per unit per year is shs.20 .The opportunity cost of capital is 10%
Required:
i. How many units should be ordered each time an order is placed to minimize costs. 3 marks
ii. Calculating the re order level. 2 marks
iii.How many orders will be placed per year. 2 marks
iv. Determine the total relevant costs. 3 marks
QUESTION THREE
a. Differentiate between ordinary shares and preference shares. 5 marks
b. Many firms believe that cost of debt is less than cost of equity yet they cannot wholly use debt and therefore still Balance between debt and equity , Explain why this is the case. 5 marks
c. Explain 5 advantages of using debentures as a source of company finance. 10 marks
QUESTION FOUR
a. Explain the assumptions of Economic order quantity (EOQ). 10 marks
b. A lenient credit policy will result to increased sales but may also lead to additional costs . Explain any five of such costs. 10 marks
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