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Rafiki Hardware Tools Company Limited sells plumbing fixtures on terms of 2/10 net 30. Itsfinancial statements for the last three years are as follows:Required:(a) For each of the three years, calculate the following ratios:Acid test ratio, Average collection period, inventory turnover, Total debt/equity, Netprofit margin and return on assets. (b) From the ratios calculated above, comment on the liquidity, profitability and gearingpositions of the company
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The management of Furaha Packers Ltd. is planning to carry out two activities at thesame time to:(i) determine the best credit policy for its customers(ii) find out the optimal level of ordering orange juice from its suppliers.The following data have been collected to assist in making the decisions:1. Annual requirements of orange juice are 2,100,000 litres2. The carrying cost of the juice is Sh.8 per litre per year3. The cost of placing an order is Sh.1,400.4. The required rate of return for this type of investment is 18% after tax.5. Debtors currently are running at Sh.60 million and have an average collectionperiod of 40 days.6. Sales are expected to increase by 20% if the credit terms are relaxed and toresult in an average collection period of 60 days.7. 60% of sales are on credit.8. The gross margin on sales is 30% and is to be maintained in future.FINANCIALRequired:(i) Use the inventory (Baumol) model to determine the economic order quantityand the ordering and holding costs at these levels per annum.(ii) Determine if the company should switch to the new credit policy.
Date posted: February 8, 2019 . Answers (1)
The dividend per share of Mavazi Limited as at 31 December 2000 was Sh.2.50.The company's financial analyst has predicted that dividends would grow at20% for five years after which growth would fall to a constant rate of 7%. Theanalyst has also projected a required rate of return of 10% for the equity market.Mavazi's shares have a similar risk to the typical equity market.Required:The intrinsic value of shares of Mavazi Ltd. As at 31 December 2000.
Briefly discuss the disadvantages of the constant growth dividend model as a valuation model.
Highlight the various measures that would minimize agency problems between theowners and the management.
Define agency relationship from the context of a public limited company and brieflyexplain how this arises.
Mumias Milling Company purchased a grinder 3 years ago at a cost of Sh.3.5 million.The grinder had a life of 8 years at the time of purchase. It is being depreciated at 15%per year on a declining balance. The company is considering replacing it with a newgrinder costing Sh.7 million with an expected useful life of 5 years.Due to increased efficiency, the profit before depreciation is expected to increase bySh.400,000 a year. The old and new grinders will now be depreciated at 25% per year ona declining balance for tax purposes.The salvage value of the new grinder is estimated at Sh.210,000. The market value of theold grinder, today, is Sh.4 million. It is estimated to have a zero salvage value after 5years.The company's tax is 30% and the after tax cost of capital is 12%.RequiredShould the new grinder be bought? Explain.
Describe in brief the greatest difficulties faced in capital budgeting in the real world.
i) What is a stock exchange index? (ii) Outline four drawbacks of the Nairobi Stock Exchange index
You are given the following price quotations on a Treasury Bond for the close oftrading on May 31 and June 30, 2000. As on June 30 this Treasury Bond has a 90-dayremaining life.(i) On May 31, the Treasury Bond had a 120-day remaining life. On that day whatpercentage of par value would you pay to purchase the Treasury Bond?(ii) Assume you purchased the Treasury Bond on May 31 and later sold it on June30. What rate of return did you earn during this one-month period
Date posted: February 7, 2019 . Answers (1)
Explain how the Capital Authority can ensure:(i) faster growth and development of the Nairobi Stock Exchange or StockExchange in your country. (ii) development of other stock exchanges in Kenya or in your country.
What economic advantages are created by the existence of:(i) Primary markets. (ii) Secondary markets (iii) Portfolio management firms