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Four challenges faced by small and medium sized enterprises (SMEs) in raising capital.
(i) Lack of enough assets to be used as collateral
(ii) They find it expensive to be listed in the stock markets to raise funds.
(iii) Due to their small scale of operations, investors look at such companies as risky, and therefore not willing to provide them with the funds they need.
(iv) Many of the SMEs are informal (they operate in unfamiliar sectors), with less publicly available information.
(v) lack of networks contributed by lack of information, know-how and experience of domestic and international markets.
francis1897 answered the question on November 7, 2022 at 09:20
- Dynamic Plc intends to invest in project Y which is expected to generate the following cash flows:
Cash flows
Year ...(Solved)
Dynamic Plc intends to invest in project Y which is expected to generate the following cash flows:
Cash flows
Year Sh.
0 -100,000
1 20,000
2 30,000
3 40,000
4 50,000
5 30,000
Additional information:
1. The cost of capital is 12% per annum
2. The acceptable discounted payback period for Dynamic Plc is 3 years
Required:
Advise the management of Dynamic Plc on whether to invest in project Y using the following methods:
(i) Net present value (NPV).
(ii) Profitability index.
(iii) Discounted payback period.
Date posted: November 7, 2022. Answers (1)
- Explain three principles of Islamic finance.(Solved)
Explain three principles of Islamic finance.
Date posted: November 7, 2022. Answers (1)
- Differentiate between “riba” and “gharar” as used in Islamic finance. (Solved)
Differentiate between “riba” and “gharar” as used in Islamic finance.
Date posted: November 7, 2022. Answers (1)
- Whiteshell Ltd.’s capital structure is provided as follows:
...(Solved)
Whiteshell Ltd.’s capital structure is provided as follows:
Sh. "000"
Ordinary share capital 60,000
Reserves 20,000
10% debentures 25,000
8% preference share capital 15,000
120,000
Additional information:
1. The firm is expected to generate annual operating profits before interest and tax of sh.10,000,000 in perpetuity.
2. The firm has acceptable investment opportunities worth sh.2,000,000 to be financed in each year.
3. Corporation tax rate is 30%
Required:
(i) Total ordinary dividend payable in each year if the firm adopts residual dividend policy.
(ii) Total ordinary dividend payable in each year if the firm adopts 60% payout ratio policy.
Date posted: November 7, 2022. Answers (1)
- Peterson Chacha borrowed sh.5,000,000 from XYZ commercial bank at an interest of14% per annum. The loan is to be repaid in equal annual installments over...(Solved)
Peterson Chacha borrowed sh.5,000,000 from XYZ commercial bank at an interest of14% per annum. The loan is to be repaid in equal annual installments over a period of 4 years.
Interest on the loan is to be paid on a reducing balance basis.
Required:
Prepare a loan amortization schedule.
Date posted: November 7, 2022. Answers (1)
- Explain four remedial measures to agency conflict between shareholders and debenture holders. (Solved)
Explain four remedial measures to agency conflict between shareholders and debenture holders.
Date posted: November 7, 2022. Answers (1)
- The forecasted rate of return from investment in securities X and Y over the next 5 years are as follows:
...(Solved)
The forecasted rate of return from investment in securities X and Y over the next 5 years are as follows:
Forecasted returns (%)
Year Security X Security Y
2022 10 12
2023 12 8
2024 8 13
2025 15 11
2026 10 6
Required:
(i) The expected rate of return for security X and security Y.
(ii) The standard deviation of returns of security X and security Y.
(iii) The coefficient of variation of security X and security Y.
(iv) Interpret results in (c) (i) and (c) (ii) above.
Date posted: November 7, 2022. Answers (1)
- Propose three strategies a firm could use in management of cash in the context of working capital financing policies. (Solved)
Propose three strategies a firm could use in management of cash in the context of working capital financing policies.
Date posted: November 7, 2022. Answers (1)
- Explain the following forms of dividend:
(i) Stock dividend.
(ii) Scrip dividend.(Solved)
Explain the following forms of dividend:
(i) Stock dividend.
(ii) Scrip dividend.
Date posted: November 7, 2022. Answers (1)
- Zenkel Traders borrowed sh.10,000,000 at interest rate of 15% per annum from Pesa Bank. The loan is to be repaid in equal annual installments for...(Solved)
Zenkel Traders borrowed sh.10,000,000 at interest rate of 15% per annum from Pesa Bank. The loan is to be repaid in equal annual installments for the next six years.
Required:
Prepare a loan amortization schedule.
Date posted: November 1, 2022. Answers (1)
- Explain the following types of risk in relation to finance and investments.
(i) Political risk.
(ii) Technological risk.(Solved)
Explain the following types of risk in relation to finance and investments.
(i) Political risk.
(ii) Technological risk.
Date posted: November 1, 2022. Answers (1)
- Hazyl Ltd. applies the Baumol’s Model to control its cash balances. The firm’s annual cash requirements are estimated at sh.4,000,000. It incurs a cost of...(Solved)
Required:
(i) The optimal cash balance.
(ii) Assuming 360 days in a year, determine the cash conversion period.
(iii) The average cash balance.
Date posted: November 1, 2022. Answers (1)
- Identify four factors that might influence the working capital needs of a company.(Solved)
Identify four factors that might influence the working capital needs of a company.
Date posted: November 1, 2022. Answers (1)
- Delight Limited is considering its capital budgets for the year 2022. The following information relates to three mutually exclusive projects that the management is contemplating...(Solved)
Delight Limited is considering its capital budgets for the year 2022. The following information relates to three mutually exclusive projects that the management is contemplating to undertake.
Project Initial cash outflows Cash inflows
Sh. "000" Sh. "000"
Year 1 Year 2 Year 3
A (8,000) 2,000 4,000 6,000
B (10,000) 4,000 6,000 6,000
C (20,000) 8,000 12,000 10,000
Additional information:
1. The firm has a capital budget ceiling of sh.20 million.
2. The cost of capital for Delight Limited is 10% per annum.
Required:
Advise the management on the projects to undertake using each of the following investment appraisal techniques.
(i) Net present value.
(ii) Profitability Index.
Date posted: November 1, 2022. Answers (1)
- Explain four differences between “Islamic banking” and “Conventional banking”.(Solved)
Explain four differences between “Islamic banking” and “Conventional banking”.
Date posted: November 1, 2022. Answers (1)
- The following information relates to the forecasted returns of securities A and B and their probabilities during the financial year ending 30 April 2022.
Probability ...(Solved)
The following information relates to the forecasted returns of securities A and B and their probabilities during the financial year ending 30 April 2022.
Probability Forecasted returns
A (%) B (%)
0.15 10 8
0.20 12 10
0.10 8 7
0.15 15 12
0.25 14 10
0.15 9 8
Required:
(i) The expected return of security A and security B.
(ii) The standard deviation of security A and security B.
(iii) Advise a potential investor on the security to invest in using relative risk.
Date posted: November 1, 2022. Answers (1)
- Citing three reasons, justify why a firm may prefer to raise finance through equity rather than debt finance.(Solved)
Citing three reasons, justify why a firm may prefer to raise finance through equity rather than debt finance.
Date posted: November 1, 2022. Answers (1)
- Explain two applications of time value of money concept.(Solved)
Explain two applications of time value of money concept.
Date posted: November 1, 2022. Answers (1)
- Samama Limited’s capital structure as at 1 October 2020 was as follows:
...(Solved)
Samama Limited’s capital structure as at 1 October 2020 was as follows:
Sh.
"000"
Ordinary share capital (par value sh.10) 373,000
Retained earnings as at 1 October 2020 27,000
18% Debentures 400,000
800,000
The above capital structure is considered optimal. The company is considering the acquisition of an investment project that will costs sh.270 million. In order to finance the investment project, the company would be required to raise additional capital.
Additional information:
1. The company can obtain additional debentures at an interest rate of 18% per annum.
2. The dividend for the year ended 30 September 2021 is expected to be sh.2.40 per share.
3. Additional ordinary shares can be issued on the Securities Exchange at a price of sh.54 per share net of floatation cost amounting to sh.6 per share.
4. Dividend are expected to grow at a rate of 8% each year for the foreseeable future.
5. Corporation tax is 30%.
Required:
(i) Cost of debentures.
(ii) Cost of retained earnings.
(iii) Cost of ordinary shares.
(iv) Amount of money for the investment project to be financed through the issue of new ordinary shares if the company is to maintain the optimal capital structure.
(v) Amount of money for the investment project to be raised through debentures.
Date posted: November 1, 2022. Answers (1)
- Master Ltd. is a private company which intends to be listed in the Securities Exchange. The company recently paid a dividend of sh.2.50 per share....(Solved)
Master Ltd. is a private company which intends to be listed in the Securities Exchange. The company recently paid a dividend of sh.2.50 per share. This dividend is expected to grow at the rate of 20% for 2 years and then drop to a growth rate of 15% per annum for the next 3 years. Thereafter, the dividend will grow at 10% per annum indefinitely. The required rate of return is 12%.
Required:
The intrinsic value of the company’s share.
Date posted: November 1, 2022. Answers (1)