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Hba2303:Financial Accounting Question Paper

Hba2303:Financial Accounting

Course:Bachelor Of Commerce

Institution: Meru University Of Science And Technology question papers

Exam Year:2012

QUESTION ONE – 30 MARKS
(a) Illustrate 5 areas in which financial models can be of use. (10Marks) (b) Explain 3 reasons for financial analysis and forecasting. (6Marks) (c) Discuss 4 limitations of using ratio analysis as a tool of financial forecasting. (8Marks) (d) Explain 3 assumptions of the capital asset pricing model. (6Marks)
QUESTION TWO – 20 MARKS
(a) Discuss 4 financial models used in Capital Budgeting. (8Marks)
(b) The stock of ABC Ltd currently sells for shs. 1,500 per share. The annual stock price volatility is 0.2 and the annual continuously compounded risk free rate is 0.05. The stocks annual continuously compound dividend yield is 0.03. Find the value of d, in the Black – Scholes formulae for the price of a call option on ABC Ltd with strike price of shs. 1,600 and time to expiration of 3 years. (12Marks)
QUESTION THREE – 20 MARKS
(a) Discuss the differences between mergers and acquisitions (6Marks) (b) Discuss the various methods of financing mergers and acquisitions. (8Marks) (c) Discuss the major motives of mergers and acquisitions. (6Marks)
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QUESTION FOUR – 20 MARKS
(a) Define the following terms as used in financial forecasting and modelling. (i) Sensitivity analysis (ii) Scenario analysis (iii) Arbitrage pricing (iv) Security market line (v) Forecast (10Marks)
(b) Assume a risk free rate of return of 8% return on market portfolio is 16% and beta of a security is 1.2 using the capital asset pricing model, compute the : (i) Required rate of return on this security (ii) If the actual return of the above security is ? 19% ? 15% On the basis of answer (i) above is the security overpriced or underpriced. (10Marks)

Hba2303:Financial Accounting Question Paper

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