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Assume all things are held constant other than the item in question, for each of the
companies below:
A company with a large proportion of insider ownership all of whom are high-income
individuals. A growth company with an abundance of good investment opportunities.
A company experiencing ordinary growth that has high liquidity and much unused borrowing
capacity. A dividend paying company that experiences an unexpected drop in earnings from a trend.
A company with volatile earnings and high business risk.
Required:
Explain whether or not you would expect each company to have a medium/high or a low dividend payment
ratio and the reasons for such categorization.
Date posted:
April 16, 2021
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Explain the factors that finance managers should analyze before making a dividend decision.
Date posted:
April 16, 2021
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Highlight the limitations of using commercial paper as a form of short-term credit.
Date posted:
April 16, 2021
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Chuma Company Ltd is considering various levels of debt. Currently it has no debt. It has a total
market value of Sh.30 million. By undertaking debt it believes that it can achieve a net tax advantage
equal to 20% of the amount of debt. However the company will incur bankruptcy and agency costs
as well as lenders increasing their interest rate if it borrows too much. The company‟s
managing director believes that the company can borrow up to Sh.10 million without incurring
any of these costs. However, each additional Sh.10 million increment in borrowing is expected to
result in the three costs cited being incurred. Moreover, the three costs are expected to increase at
an increasing rate with leverage. The present value cost of various levels of debt is as follows:
Required:
Advise the managing director on the optimal amount of debt for Chuma Company.
Date posted:
April 16, 2021
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Mr. Mlachake is currently holding a portfolio consisting of shares of four companies quoted on the Bahati Stock Exchange as follows:
The current market return is 14% per annum and the treasury bills yield is 9% per annum.
Required:
(i) Calculate the risk of Mlachake‟s portfolio relative to that of the market.
(ii) Explain whether or not Mlachake should change the composition of his portfolio.
Date posted:
April 16, 2021
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Briefly explain three practical uses of the capital asset pricing model.
Date posted:
April 16, 2021
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Imprisonment is one of the penalties for non-compliance. TRUE or FALSE?
Date posted:
April 15, 2021
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What part of the Companies Act relates to foreign companies?
Date posted:
April 15, 2021
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Outline the examples of access controls.
Date posted:
April 15, 2021
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Outline the roles of International Financial Reporting Standards in preparation of financial statements.
Date posted:
April 15, 2021
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State the similarities between debentures and shares.
Date posted:
April 15, 2021
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State the advantages of a trust deed.
Date posted:
April 15, 2021
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Outline the contents of a trust deed.
Date posted:
April 15, 2021
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State the disadvantages of floating charges.
Date posted:
April 15, 2021
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State the advantages of floating charges.
Date posted:
April 15, 2021
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What chapter number of the laws of Kenya is the Cooperatives Societies Act?
Date posted:
April 15, 2021
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What is the maximum number of persons in a sole trader?
Date posted:
April 15, 2021
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What are the two fundamental principles of company law?
Date posted:
April 15, 2021
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You have been retained by the management of an international group to advise on the management of its
foreign exchange exposure.
Required:
(a) Explain the main types of foreign exchange exposure
(b) Advise on policies which the corporate treasurer could consider to provide valid and relevant methods of reducing exposure to foreign exchange risk.
Date posted:
April 15, 2021
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What economic benefits might countries gain from forming a common market?
Date posted:
April 15, 2021
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State the differences between free trade areas, customs unions and common markets.
Date posted:
April 15, 2021
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Explain the features of structural adjustment programmes.
Date posted:
April 15, 2021
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State and explain the types of euro-currency loans.
Date posted:
April 15, 2021
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ABC Ltd a UK firm has been invited to tender for a contract in Blueland with the local currency of Blues
(B). The company thinks that the contract should cost £1 850, 000 and is prepared to price the contract
at £2 million. The current exchange rate for Blues and £ is £1: B2.80. The company therefore bids for
B5.6 million. The contract will not be awarded until after six months. A 6 month currency option to sell
B5.6 million at an exchange rate of £1: B2.8 is currently costing £40 000.
ABC Ltd can either buy the option or enter into forward Exchange contract at a rate of £1: B 2.80,
Assume that the company fails to win the contract and the spot rate in 6 months time is £1:B2.50.
Required:
Advice the company on which alternative is better.
Date posted:
April 15, 2021
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XYZ Ltd, a UK firm has bought goods from a US supplier and must pay USD 4 million in 3 months time.
The company finance director wishes to hedge against the foreign exchange risk and is considering 3
methods:
- Using the forward exchange contract
- Using the money market hedge
- Using a lead payments
Annual interest rate and foreign exchange rate are given below:
Required
Advise the company on the best method to use.
Date posted:
April 15, 2021
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Assume that the following quotation is given:
Spot rate £1: USD1.635 - USD 1.6385
One month forward 0.5 – 0.47 cents premium
Required:
Compute the cost of the forward cover for a customer
Buying dollars 1 month forward.
Selling dollars one month forward.
Date posted:
April 15, 2021
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Assume that the foreign currency (F) has been quoted against the £ as follows :
Spot rate £1: F2156 – 2166
3 months forward rate £1: F2207 – 2222
Required:
1. Determine the amount required in sterling pound to buy 2 million foreign currencies
• At the spot
• In 3 months time under the forward exchange contract.
2. Compute the amount a customer would get if he were to sell 2 million foreign currency.
• At the spot rate
• In 3 months time under forward exchange contract
Date posted:
April 15, 2021
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State and explain the ways in which the exchange rate exposure can be perceived.
Date posted:
April 15, 2021
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Outline the advantages of using fixed exchange rates.
Date posted:
April 15, 2021
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Define the term fixed exchange rate.
Date posted:
April 15, 2021