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Financial Management Year 2010 Question Paper
Financial Management Year 2010
Course:Mba
Institution: Kabarak University question papers
Exam Year:2010
INSTRUCTIONS:
1. Answer question ONE and any other THREE questions
2. Write your registration number clearly, be neat, brief and show all your workings
QUESTION 1 (Total marks 30)
i. Describe the trend of the over the counter global secondary security markets. (6 marks)
ii. Enterprise Y Limited is planning to fund a pension scheme for its employees. Management
seeks to know how much the plan would be worth at the end of 10 years, if the entity
contributes Ksh 200,000 per year and invest the funds at 15 percent interest rate per year.
Advise the management. (4 marks)
iii. Compare and contrast unsystematic and systematic risks and beta. (4 marks)
iv. Compare and contrast capital and money markets citing at least 2 instruments found in the
Kenyan financial system in each case. (6 marks)
v. Discuss any 5 legal factors affecting dividend policies. (10 marks)
QUESTION 2 (Total marks 10)
i. As a finance manager of Mokiolok Enterprise, where the Board of Trustees is reviewing the
mix of the capital structure of the firm based on target value and has decided to raise 30
percent of new funds from long-term debt, 10 percent from preferred shares, and 60 percent
from ordinary shares with components of 5.6, 10.5 and 15.7 respectively. Estimate
percentage of this BEST MIX for the enterprise and support the decision taken based on this
method. (6 marks)
ii. Estimate the price of a semiannual coupon bond with a face value of Kshs 1000, a 10 percent
coupon rate, and 15years remaining until maturity given that the required is 12%. (4 marks)
QUESTION 3 (Total marks 10)
i. Critically examine the following types of bonds as used in the corporate world: (6 marks)
1) Guaranteed bonds.
2) Income bonds
3) Zero-coupon Bonds:
Then estimate the market value of a 1, 000 KES, 10 percent rate of return required by the
bondholders and 15 years to maturity of Zero coupon bond.
ii. It is known to management that the Manyata real estate Enterprise Limited is growing at 8
percent per year. In the board meeting therefore, one of the directors of the enterprise wanted
to know the number of years it would take the enterprise to sell 500 houses, the maximum
capacity of the available production facilities. Current production is 100 housing units per
year. Work out the years. (4 marks)
QUESTION 4 (Total marks 10)
i. What do you understand by the phrase capital structure of an enterprise? (4 marks)
ii. Discuss 6 factors considered when designing a suitable capital structure of an enterprise.
(6 marks)
QUESTION 5 (Total marks 10)
i. You are planning to start an enterprise. What sources would you tap to get the working capital
required by the enterprise? Support your answer. (6 marks)
ii. As a financial expert you have been approached to train newly recruited employees of Salama
Enterprise Ltd. Discuss with them the use of debentures in search for extra funds. (4 marks)
QUESTION 6 (Total marks 10)
i. Assume that fixed cost of Mlolongo Enterprise is 50,000 Ksh, price per unit is 10 Ksh and
variable cost per unit is 5 Ksh. Establish the break even quantity using algebraic methods and
confirm it on a graph and advise the management accordingly. (4 marks)
ii. Distinguish between direct and indirect exchange rates. How are the two related?
Use a numerical illustration to explain their relationship (6 marks)
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