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Why does ordinary share capital have a high cost relative to debt capital?
Date posted:
February 12, 2019
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What practical problems are faced by finance managers in capital budgeting decisions.
Date posted:
February 12, 2019
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What are the features of a sound appraisal technique?
Date posted:
February 12, 2019
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What are the advantages of having a farmers' bank compared with an ordinary
commercial bank in the provision of services to farmers
Date posted:
February 12, 2019
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Why do different sources of finance have different costs?
Date posted:
February 12, 2019
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The Kitale Maize Mills is contemplating the purchase of a new high-speed grinder to replace an
existing one. The existing grinder was purchased two years ago at an installed cost of Sh.300,000.
The grinder was estimated to have an economic life of 5 years but a critical analysis of its
performance now shows it is usable for the next five years with no resale value.
The new grinder would cost Sh.525,000 and require Sh.25,000 in installation costs. It has a five
year usable life. The existing grinder can currently be sold for Sh.350,000 without incurring any
removal costs. To support the increased business resulting from purchase of the new grinder,
accounts receivable would increase by Sh.200,000, inventories by Sh.150,000 and trade creditors
by Sh.290,000. At the end of 5 years the new grinder would be sold to net Sh.145,000 after
removal costs and before taxes. The company provides for 40% taxes on ordinary income. The
estimated profit before depreciation and taxes over the five years for both machines are given as
follows:
The company uses straight line method of depreciation for both machines.
Required:
a) Calculate the initial investment associated with the replacement of the existing grinder
with the new one. Show your full workings.
b) Determine the incremental operating cash flows associated with the proposed grinder
replacement.
c) Calculate the terminal cash flow expected from the proposed grinder replacement.
Date posted:
February 12, 2019
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Auma Ltd. acquired 80% of the ordinary shares of Sakwa Ltd. on 31 October 2009 for Sh. 117 million. At this date, the net assets of Sakwa Ltd. were Sh. 127.5 million. The fair value of the non-controlling interest on the acquisition date was Sh.28.5 million.
Calculate the value of goodwill using the two methods
Date posted:
February 12, 2019
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Distinguish between the full method and the partial method of determining goodwill arising on acquisition of a subsidiary company
Date posted:
February 12, 2019
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The valuation of ordinary shares is more complicated than the valuation of bonds and
preference shares. Explain the factors that complicate the valuation of ordinary shares.
Date posted:
February 12, 2019
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Within a Financial Management context, discuss the problems that might exist in the
relationships (sometimes referred to as agency relationships) between:
1. Shareholders and managers, and
2. Shareholders and creditors.
Date posted:
February 12, 2019
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Briefly explain three circumstances in which a parent company need not present consolidated financial statements in accordance with International Accounting Standard (IAS ) 27 ,Consolidated and Separate financial Statements
Date posted:
February 12, 2019
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Differentiate between full consolidation and equity method of accounting for subsidiaries and associate companies
Date posted:
February 12, 2019
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International Accounting Standard (IAS) 28, Investment in Associates prescribes the use of the equity method of accounting for investments in associates over which the investor has significant influence.
Required:
i) Describe the term "significant influence" in the context of IAS 28.
ii) Explain four circumstances under which the investor is exempted from use of the equity method.
Date posted:
February 12, 2019
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Distinguish between the following terms:
(i) Weighted average cost of capital and marginal cost of capital.
(ii) Finance lease and operating lease.
Date posted:
February 12, 2019
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The management of Biashara Ltd. is in the process of evaluating two
alternative machine models, Alpha and Beta for possible purchase in order to
increase the company's production level.
The following additional information is available:
1. Alpha costs Shs. 3,800,000 and will have a useful life of four years.
2. Beta costs Shs. 8,000,000 and will have a useful life of six years.
3. Both machines have no salvage value after their useful lives.
4. An investment in working capital amounting to Shs. 825,000 will have to be made
at the beginning of the first year of the machine‟s life regardless of the
model purchased.
5. The estimated pre-tax cash inflows for each of the machines are shown below:
6. The cost of capital to the company is 12% and the corporation tax rate is 30%.
Required:
(i) Calculate the undiscounted pay back period for each machine model.
(ii) Calculate the net present value (NPV) for each machine model.
(iii) Using the net present values computed in
(ii) above, advise the management on
which model to purchase.
(iv) The management of the company has received an alternative offer to lease
Alpha at an annual lease charge of Shs. 1,200,000 for four years, payable at
the year end. All other details remain unchanged.
Will this offer affect your selection in part
(iii) above? Explain.
Date posted:
February 12, 2019
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Mwongozo Limited has approached you for advice on an equipment to be purchased
for use in a five year project.
The investment will involve an initial capital outlay of Shs. 1.4 million and the expected
cash flows are given below:
The equipment is to be depreciated on a straight line basis over the duration of the
project with a nil residual value.
The cost of capital and the tax rate are 12% and 30% respectively.
Required:
The net present value (NPV) of the investment.
Date posted:
February 12, 2019
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Explain the circumstances in which an entity is permitted to change its accounting policies.
Date posted:
February 12, 2019
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What meetings of creditors must be held and for what purpose in the course of a creditors’ voluntary winding up?
Date posted:
February 12, 2019
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The following trial balance was extracted from the books of ABC Retirement Benefits Scheme for the year ended 30 September 2003:
Date posted:
February 12, 2019
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Briefly explain the meaning of the term “abatement”
Date posted:
February 12, 2019
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The following trial balance was extracted by the trustees of XYZ Retirement Benefit Scheme as at 31 May 2007
Date posted:
February 12, 2019
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Explain threats and Challenges to Wetlands in Kenya
Date posted:
February 11, 2019
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The following trial balance was extracted from the books of Juhudi Retirement Benefits Scheme as at 31 March 2011:
Date posted:
February 11, 2019
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Outline four categories of expenses that should be recognized in the income statement in accordance with International Accounting standard (IAS) 19 “Employee benefits”
Date posted:
February 11, 2019
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Mwenyeji Limited exported some of its products through an overseas branch whose currency is “Kove”. The trial balances of the Head Office and the Branch as at 30 June 2000 are as follows:
Date posted:
February 11, 2019
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Trendsetters Limited operates two branches, one in Nairobi and one in Mombassa. These two branches are supplies from a warehouse in Athi River town where the Head Office of the Company is situated. All purchases are made at the head office. Goods are charged to both branches all selling price, which is head office cost plus 50%. All cash receipts in the branches are banked daily. The following figures relate to the company’s performance for the year ended 30 September 2000 and financial position as at that date.
Date posted:
February 11, 2019
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Joshua set up a business on 1 April 2000 in Nairobi with a branch in Mombasa. Purchases are made exclusively by Nairobi office where goods are weighed and packed before sale. The branch handles packed goods only from Nairobi and these are charged thereto at packed cost plus 10%. All sales by both branches are at a uniform gross profit of 25% on the packed cost.
The following balances have been extracted from the books of the business as at 31 March 2001
Date posted:
February 11, 2019
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Victoria Gowns is a fashionable ladies-wear chain of clothing stores, started in Kakamega, but now present in all the major towns in Kenya and in Kampala, Uganda and in Dar-essalaam, Tanzania. The accounts of all the branches are maintained in the books of the head office, now situated in Nairobi. The figures below that refer to goods are stated at selling prices, following figures relate to transactions carried out by the Mombasa branch in the year ended 31 May 2001:
Date posted:
February 11, 2019
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Traders Limited operates two branches one in the head office in Nairobi and the other in Busia. Purchases of stock are made exclusively by the head office branch which does some modification to the stocks before they are sold. Goods are sent to the Busia branch at modified cost plus 10% and all sales by both Busia branch and head office branch are made at a gross profit of 25% on the modified goods.
The trial balances as at 30 June 2002 before taking account of the under mentioned adjustments were:
Date posted:
February 11, 2019
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Mr. Mwadafu operates a sole proprietorship dealing in cement. The business has a head office in Mombasa and a branch in Athi River. The branch maintains its own books. As at 31 December 2003, the trial balances of the head office and the branch were as follows:
Date posted:
February 11, 2019