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Cfm 201 Financial Plannining &Amp; Control (Day &Amp; Eve Question Paper
Cfm 201 Financial Plannining &Amp; Control (Day &Amp; Eve
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
1
UNIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE BACHELOR OF COMMERCE
CFM 201 FINANCIAL PLANNINING & CONTROL (DAY & EVE)
DATE: DECEMBER 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer Question ONE and any other TWO
Question One
a) Briefly highlight the importance of a budgets (8 Marks)
b) Explain the importance of capital budgeting decisions (4 Marks)
c) The DuPont formula defines the net return on shareholders’ equity as a function of the
following components;
Operating margin - financial leverage
Asset turnover - Income tax rate
Interest burden
The following data s provided for Okambo Ltd
Income statement data
2008
“millions”
2009
“millions”
Revenues 542 979
Operating income 38 78
Depreciation and amortization 3 9
Interest expense 3 0
Pretax income 32 67
Income taxes 13 37
Net Income after Tax 19 30
Balance sheet data 1
2
Fixed assets 41 70
Total assts 245 291
Working capital 123 157
Total Debt 16 0
Total shareholder equity 159 220
Required
i) Calculate each of the five components listed above for the two years [10 Marks]
ii) Calculate ROE using the five components for the two years [4 Marks]
iii) Briefly; discuss the impact of the changes in asset turnover and finical leverage on the change
of ROE from 2008 to 2009. [4 Marks]
Question Two
(a) The following is the capital structure of XYZ Ltd as at 31/12/2009.
Additional
information
1. Corporate tax rate is 30%
2. Preference shares were issued 10 years ago and are still selling at par value MPS = Par
value
3. The debenture has a 10 year maturity period. It is currently selling at Sh.90 in the market.
4. Currently the firm has been paying dividend per share of Sh.5. The DPS is expected to
grow at 5% p.a. in future. The current MPS is Sh.40.
Required
(a) Determine the WACC of the firm. (10 Marks)
(b) Mali Ltd is considering acquiring a machine which is likely to increase production of sales
levels.
The machine will cost Sh 10m & will have a useful life of 4 years. The salvage value will be
Sh. 2m.
Ordinary share capital Sh.10 par value
Retained earnings
10% preference share capital Sh.20 par value
12% debenture Sh.100 par value
Shs.
400,000,000
200,000,000
100,000,000
200,000,000
900,000,000
3
Aditional information;
The annual incremental sales & fixed costs (excluding dep) the use of the machine & their
probability of occurrence are estimated as follows;
Incremental sales Prob Incremental Fc Prob
50,000,000 0.3 20,000,000 0.4
80,000,000 0.4 30,000,000 0.6
90,000,000 0.3
Investment in raw materials of Sh. 6,000,000 and increase creditors of Sh. 4,000,000.
Cost of capital is 10 percent & tax rate 30 percent
Required
Using NPV advise whether the acquisition should be accepted (10 Marks)
QUESTION THREE
Mijijo Ltd Manufactures a product branded “omega”. The production of omega requires a raw
material which costs Sh. 136 per kilogramme and direct labour which costs Sh. 600 per hour.
Each unit of omega requires 2 kilogrammes of the raw material, 15 minutes of direct labour and
variable overheads of Sh. 115. Delux retails at Sh. 1,360 per unit.
Additional information:
1. The company is in the process of preparing budgets for the financial year ending 30 June
2008.
2. The fixed production overheads for the year
Sh.
Depreciation of plant and machinery 1,500,000
Insurance 600,000
Supervision 2,100,000
Other fixed overheads (non-production) are estimated as follows:
Sh.
Depreciation of office equipment 900,000
Advertising 600,000
Salaries 6,480,000
4
3. Allocated selling and administration expenses for the year ending 30 June 2008 are estimated
at Sh. 130 per unit of omega The budgeted opening and closing inventories of raw material
and finished goods (omega) for the year ending 30 June 2008 are shown below:
1 July 2007 30 June 2008
Raw material 15,000 units 3,000Kgs
Finished goods 1,500 units 7,500 units
4. The company expects to sell 300,000units of omega during the year ending 30 June 2008:
Required:
Prepare the following budgets for the year ending 30 June 2008:
i. Sales budget (in shillings). (4 Marks)
ii. Production budget (in units). (4 Marks)
iii. Direct materials budget (in shillings). (4 Marks)
iv. Direct labour budget (in shillings). (4 Marks)
v. Manufacturing overhead budget (in shillings). (4 Marks)
Question Four:
(a) Distinguish between capital structure and financial structure (4 Marks)
(b) Describe the factors that influence the cost of capital in an organisation (10 Marks)
(c) Describe the scope of Financial Management (6 Marks)
Question Five:
(a) Wananchi Fabricators ltd reported a before-tax operating income of ksh 21,000,000 for the
year 2009. This was after charging ksh 4,000,000 for development and launch cost of a new
product that is expected to generate profits for 4 years. Corporation tax is paid at the rate of
30% of the operating profit.
The company has a risk-adjusted WACC of 12% pa and it is paying interest at 9% pa on a
substantial long term loan (not charged as an expense in the operating income above)
The company’s non-current assets value is ksh 50,000,000 and the net current assets have a value
of ksh 22,000,000. The replacement cost of the non-current assets is estimated to be ksh
64,000,000
Required:
Calculate the company’s economic value added for the period. (10 Marks)
(b) Explain the difference between traditional costing and Activity based costing Systems
(10 Marks)
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