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Hbs2100:Strategic Management Question Paper
Hbs2100:Strategic Management
Course:Bachelor Of Supplies Management
Institution: Meru University Of Science And Technology question papers
Exam Year:2013
QUESTION ONE (30 MARKS)
a) Describe the scope of financial management. (10 marks) b) Decisions and policies of financial managers in an organization can be influenced and affected by different dynamics of the environment in which the business exists. Describe the various major factors that can affect such decisions or policies. (10 marks) c) Describe the principal methods used by management in evaluating investments projects. (10 marks)
QUESTION TWO (20 MARKS) The following are the financial statements of Richardo Limited for the year ended 31st March 2013:
Statement of financial status:
Details Shs. Details Shs. Cash 480,000 Trade Creditors 860,000 Debtors 640,000 Notes payable (9%) 840,000 Stock 2,080,000 Long term debts (10%) 1,600,000 Net Equipments 1,600,000 Shareholders Equity 1,500,000 4,800,000 4,800,000
2
Income statement on same date:
Details Shs. Shs. Sales 6,000,000 Less: Cost of sales 3,600,000 Gross profit 2,400,000 Expenses: Selling expenses 600,000 Administrative & general expenses 1,120,000 Interest charges 235,600 1,955,600 Profits before taxation 444,400 Taxation 177,760 Profits after tax 266,640
The financial manager has provided the following ratios as averages for the industry:
Current ratio 2.5 times Acid test ratio 1.1 times Stock turn over ratio 2.4 times Total Assets turnover ratio 1.4 times Times interest earned ratio 3.5 times Net profit margin 4.0 times Return on Investments 5.6 times Total shareholders equity 3.0 times Return on shareholders equity 16.8%
Required:
a) Compute the ratios shown above and present them in columnar form along the industry averages and comment of the firm performance. (14 marks) b) Comment upon the following about Richardo Limited in relation to the industry averages: i) Liquidity position (3 marks) ii) Financial risk (3 marks)
QUESTION THREE (20 MARKS)
a) Define the term weighted cost of capital and explain how it is important in financial management decisions. (5 marks) b) Spenomatic Industries Limited has the following financial capital structures: i) 15,000 ordinary shares @ Shs.50 each ii) 5,000 preference shares @ Shs.20 each iii) 10,000 debentures @Shs.10 each iv) KCB Loan of Shs.80,000
3
The monetary costs of this capita is as follows: i) Ordinary share 32% ii) Preference shares 30% iii) Debentures 10% iv) Loans KCB 9% v) Corporate tax is at 50%
Required: Taking into account the rate of corporate tax, compute the weighted cost of capital of the above mix showing your full workings. (10 marks)
c) In the context of working capital management, explain the major factors the management may need to consider in decisions of extending credit expansion and extension to debtors. (5 marks)
QUESTION FOUR (20 MARKS)
a) Highlight the reasons why budgeting and budgetary activities /practices are important in financial management controls. (4 marks) b) The following information was extracted from the records of Maputo Company Ltd for the two years ending 30th September 2013:
2012 (Shs.’000’)
2013 (Shs.’000’) Raw material inventory 180,000 204,000 Work in progress inventory 125,000 145,000 Finished goods inventory 100,000 150,000 Debtors for the year 265,000 295,000 Creditors for the year 110,000 130,000 Annual sales 1,360,000 1,560,000 Cost of goods sold for the year 850,000 902,000 Annual raw material purchased 1,250,000 1,400,000
Required:
i) Compute the operating cycle period (OCP) for the purpose of working capital management policies. (12 marks) ii) Using your answer in b(i) above, comment on the viability of the creditors and debtors policy of the company and how it can be improve. (4 marks)
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