Dfm 101 Business Finance Question Paper
Dfm 101 Business Finance
Course:Diploma In Business Management
Institution: Kca University question papers
Exam Year:2014
UNIVERSITY EXAMINATIONS: 2013/2014
STAGE IV ORDINARY EXAMINATION FOR THE DIPLOMA IN
BUSINESS MANAGEMENT
DFM 101 BUSINESS FINANCE
DATE: APRIL 2014
TIME: 1 1/2 Hours
INSTRUCTION: Answer any THREE questions
QUESTION ONE: (20 MARKS)
a) Identify four importance of ratio analysis to a business organization
Sales
Cost of sales: Opening stock
Purchases
Closing stock
Gross profit
Expenses
Net loss
(4 marks)
Income statement for the year ended 31 December 2008:
Shs.
Shs.
9,040,000
2,500,000
6,820,000
9,320,000
2,860,000
6,460,000
2,580,000
2,640,000
60,000
Balance sheet as at 31 December 2008:
Shs.
Shs.
Non-current assets: 5,600,000
Premises 500,000
Fixtures and fittings (net book value) 1,040,000
Motor vehicles (net book value)
Current assets: 2,860,000
Stock
7,140,000
Debtors
Current liabilities:
Trade creditors
Bank overdraft
Net current assets
Net assets
3,260,000
6,120,00
2,900,000
2,800,000
5,700,000
420,000
7,560,000
Financed by:
Ordinary share capital
2,000,000
Retained profit
3,160,000
Long-term loans
2,400,000
Capital employed
7,560,000
b) Sunrise Limited presented the following financial statements for the year ended 31 December
2008:
Assume a 360-day year.
Required
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
Quick ratio.
Current ratio.
Debt to equity ratio.
Net profit margin ratio.
Debtors turnover ratio.
Stock turnover ratio
Fixed assets turnover ratio
Average debtors collection period
(2 Marks)
(2 Marks)
(2 Marks)
(2 Marks)
(2 Marks)
(2 Marks)
(2 Marks)
(2 Marks)
QUESTION TWO: (20 MARKS)
a) Businesses require finances to support their operating activities as well for investment in the
long-term. Discuss three internal sources of funds and three external sources of funds to a
business
(6 marks)
b) Calculate the future value of shs. 200,000 compounded at 8% p.a for 4 years if compounding
is done
i)
Half yearly
(2 marks)
ii)
Quarterly
(2 marks)
iii)
Monthly
(2 marks)
iv)
Weekly
(2 marks)
c) Calculate the present value of an investment which promises equal receipts of shs. 20,000
each year for the next 2 years if the discounting rate is 12% p.a assuming:
i) The cash inflows are receivable at the end of each year
(3 marks)
ii) The cash inflows are receivable at the start of each year
(3 marks)
QUESTION THREE: (20 MARKS)
a) Identify the functions of a finance manager in a corporate firm
(6 marks)
b) Businesses find it important to respond to issues of welfare of the society by engaging in
what is considered to be corporate social responsibility goals. Identify any six key areas of
corporate social responsibility goals
(6 marks)
c) Lima ltd has a four-year project which is expected to generate the following cash flows
year
Cash flows
1
60,000
2
40,000
3
30,000
4
50,000
The initial outlay of the project is sh 150,000. The cost of capital of the firm is 14%. Compute
i) The payback period
ii) The Net Present Value
iii) The profitability index
(2 marks)
(4 marks)
(2 marks)
QUESTION FOUR: (20 MARKS)
The following statement of financial position relates to Mageuzi Ltd as 31 December 2013
Mageuzi Ltd
Statement of financial position as at 31 December 2013
Sh. Millions
Sh. Millions
Fixed assets (net book value)
13
Current assets
Stock
3
Debtors
2
5
Current liabilities
Creditors
(6)
(1)
12
Financed by:
Ordinary share capital
4
Retained earnings
6
Long term debt
2
12
Additional information
1. Sales in the year ended 31 December 2013 amounted to sh. 20 million. The sales for the
current year ending 31 December 2014 are expected to increase by sh.4 million.
2. The net profit margin and retention ratio for the year ended 31 December 2013 were 8%
and 30% respectively. These ratios are expected to be maintained in the foreseeable
future
3. All assets and current liabilities are expected to change in the current year ending 31
December 2014 at the same percentage as the change in sales.
Required:
(i)
(ii)
(iii)
The amount of external financial requirement for the year ending 31 December 2014
(10 marks)
A proforma statement of financial position as at 31 December 2014
(6 marks)
Identify the basic assumptions made in financial forecasting using the percentage of
sales method
(4 marks)
QUESTION FIVE: (20 MARKS)
a) “Despite the large investment in the stock exchange and the various government incentives,
only a few companies are listed at the stock exchange of the three East African countries”.
This was the opening remark by the guest speaker in a seminar whose theme was
“Developing our capital market”.
Required:
i.
The advantages of being listed at the stock exchange.
(6 marks)
ii.
Highlight four factors that may hinder companies from being listed at the stock
exchange.
(4 marks)
b) Distinguish between primary and secondary securities market.
(4 marks)
c) Marie stopes has a five year project whose initial cash outlay is shs. 250,000. The project has
a salvage value of shs. 30,000 and is expected to generate the following earnings after tax.
year
Earnings after tax in shs.’000’
Compute the ARR of the project
1
40
2
60
3
30
4
30
5
50
(6 marks)
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