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Hbc2119:Business Finance Question Paper
Hbc2119:Business Finance
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2012
QUESTION ONE – 30 MARKS
a. There are factors that one may consider in choosing a source of finance. Discuss any five such factors. (10 Marks) b. Discuss the various objectives of a firm. (10 Marks) c. Explain four functions of a financial manager. (4 Marks) d. Suppose you have borrowed a three year loan of sh100,000 at 9% interest rate form a bank. If the bank requires three equal end of year repayments, then how much will be each installment. (6 Marks)
QUESTION TWO – 20 MARKS
a. Discuss five advantages and five limitations of ratio analysis. (10 Marks) b. The following statements belong to XYZ Company Ltd. XYZ Ltd Trading Profit & Loss Account For the year ended 31/12/2010
Sh Sh Sales Cash Credit Sales
Cost of Sales Opening Stock Purchases
Less Closing Stock
Gross Profit
210,000 660,000 870,000 150,000
300,000 600,000
900,000
720,000 180,000
2
Less Expenses Depreciation Directors Emoluments General Expenses Interest on Loan Net Profit Before Tax Less Corporation Tax @ 50% Net Profit After Tax Less Appropriations Preference Divided Ordinary Divided Profit and Loss Account
13,100 15,000 20,900 4,000
4,800 10,000
53,000 127,000 63,500 63,500
14,800 48,700
XYZ Ltd Balance Sheet as at 31/12/2010 Sh Sh Fixed Assets Current Assets Stock Debtors Others
Current Liabilities Creditors Provision for Corporation Tax
Working Capital Net Assets
Financed by: Share Capital Ordinary Share Capital @10 8% Preference Share Capital
Revenue Reserves P & L A/c 31/12/2009 P & L A/c 31/12/2010 10% Loan Finance
150,000 35,900 20,000
60,000 63,500 14,800 138,300
100,000 60,000
32,800 48,700
213,900
67,600 281,500
160,000
81,500 40,000 281,500
Additional Information
1. 2. The company pays a divided of 10% p.a which is likely to be maintained in the foreseeable future 3. The corporation tax is 50% Required: Compute all relevant rations that would be of interest to the management. (10 Marks)
3
QUESTION THREE – 20 MARKS
As a recent graduate of MUCST, you have been asked to help a manufacturing firm to decide whether it should invest in a new plant. The initial cost of the plant is expected to be sh35m and the plant flows of sh5m a year for the next 20 years. An additional investment of sh10m will be required to upgrade the plant in 10 years. The firms cost of capital is 10%.
Required:
i. Estimate the projects NPV ii. Determine the projects PI (20 Marks)
QUESTION FOUR – 20 MARKS
In reference to the Nairobi securities exchange, discuss the following: a. Function of the stock exchange. (10 Marks) b. Advantages of stock quotation at NSE (5 Marks) c. Differentiate between money markets and capital markets. (5 Marks)
QUESTION FIVE – 20 MARKS
a. Define risk and explain three types of risk attitudes. (8 Marks) b. Discuss four techniques of capital budgeting. (12 Marks)
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