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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:2013
QUESTION ONE (20 MARKS)
a) Explain four limitations of using ratios in financial analysis (4 Marks) b) Tablers Ltd wishes to expand its business. On 31st May 2010 the company had the following existing capital structure. (Shs.000) 10% preference shares of sh 25 1,200,000 15% preference shares of sh 20 1,400,000 20% Debentures of sh 50 1,000,000 Ordinary shares of Sh.25 1,500,000 Total Capital Employed 5,100,000 The capital employed is in book value. The Market values of the above finance are as follows: (i) Sh.35 each Ordinary shares which include Sh5 in floatation costs. (ii) 10% preference shares current value is Sh.30 each. (iii) 15% preference shares current value is Sh.25 each (iv) 20% debentures current value is sh60 each. Ordinary shareholders expect cash dividends of sh5 per share and capital appreciation of 4% at the end of every year.
Required:
Comp Corporation tax being 40% (16 Marks)
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QUESTION TWO (20 MARKS)
a) Discuss the Discounted cash-flow methods of capital budgeting (3 Marks) b) Explain three reasons why capital budgeting decisions are important (3 Marks) c) Makongeni Investment Company is considering a proposal to install new milking machines. This machine will cost Shs. 60,000,000. The machine has a life 30% and no investment tax credit allowed. Depreciation is on straight line method. The estimated earnings before depreciation and tax (EBDT) from the investment proposed are:- Year Earnings before depreciation and Tax (EBDT) (Sh.000) 1 12,000 2 13,000 3 16,000 4 17,000 5 27,000
Required:
(i) Pay pack period (4 Marks) (ii) Accounting Rate of Return (5 Marks) (iii) The net present value (5 Marks)
QUESTION THREE (15 MARKS)
a) Discuss three emerging roles of a finance manager (3 Marks) b) The following Balance sheet was extracted from the books of Maina ltd as at 30/11/2005. Assets Shs . Non Current Assets 13,200 Current Assets 8,800 22,000 Financed by: Ordinary share capital 2,200 Retained Earnings 6,600 Long term Debts 8,800 Accrued Expenses 2,200 Trade Creditors 2,200 22,000
The company is about to embark on advertising campaign which is expected to raise sales from the current level of sh27.5M to Sh38.5 M by the next year. The firm is currently operating at full capacity and will have to increase its investments in both current and fixed assets to support projected level of sales. Its estimated that both categories of assets will use in direct proportion to increase in sales. For the year just ended, the firm has suspended payment of dividends. In the past, the dividend payout
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expected to vary directly with sales. In addition, notes payable will be used to supply the additional funds to the year.
Required: (i) Estimated amount of additional funds to be increased through notes payable. (6 Marks) (ii) Proforma Balance sheet as at 30/11/06 (6 Marks)
QUESTION FOUR (15 MARKS)
a) (3 Marks) b) What do you understand by money markets and capital markets. Cite relevant examples of the items traded in both. (3 Marks) c) How does a company quoted in the Nairobi Stock Exchange benefit more than the unquoted one? (3 Marks) d) Briefly compare and contrast debt finance and equity finance (3 Marks) e) What are the function of Central Depository system(CDS) in the Nairobi Stock exchange. (3 Marks)
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