Entrepreneurial Finance Question Paper
Entrepreneurial Finance
Course:Master Of Business Administration
Institution: Kenyatta University question papers
Exam Year:2009
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION
BAC 604:
ENTREPRENEURIAL FINANCE
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DATE: TUESDAY 24TH NOVEMBER 2009
TIME: 2.00 P.M. – 5.00 P.M.
INSTRUCTIONS
Answer Question One and Any other Three Questions
All Questions carry equal marks
Q.1
Three years ago a young enterprising Kenyan set up a venture to pursue an idea on the use of renewable energy. Although he approached several commercial banks, he as unable to convince them on the viability of the new idea. Convinced of the viability of the idea, he was not discouraged and eventually he was able to mobilize his own financial resources which he used as his start up capital. At the beginning of the current financial year, the venture’s assets were estimated at Kshs 12 mn all of which were financed with his own money. The sales for the year are Kshs 12 mn and the distributable income for the year is Kshs 2.5 mn.
a)
Using the Sustainable Growth Model, compute the return on equity of the entrepreneur’s investment in the venture. (5 marks)
b)
In order to improve the rate of growth of the venture the entrepreneur had decided right from the start to retain 80% of the ventures distributable income within the venture. Using the Sustainable Growth Model, determine the growth rate in equity of the venture. (6 marks)
c)
In order to improve the bottom line the entrepreneur has decided to change the capital structure by employing 50% debt. He can raise the necessary capital at a cost of 15% annually. The venture, being set up as a corporation, pays tax at the rate of 30%. The operating income (or earnings before interest and tax) of the venture for the current year is Kshs. 9 million. Determine the venture’s distributable profit under the new financing arrangement. (6 marks)
d)
If under (c) above the retention rate of profit remains unchanged, what is the growth rate in equity of the entrepreneur? What is the effect of using debt capitals on the venture’s equity growth rate? (8 marks)
Q.2
Explain the process involved in the formation of a new venture. (25 marks)
Q.3
Discuss any ten sources of new venture financing that are available to an entrepreneur and the stages where each is most appropriate. (25 marks)
Q.4
Discuss the areas that are most appropriate to include in a business plan to be used for attracting outside investment. (25 marks)
Q.5
Discuss the cash flow cycle of a business venture. (25 marks)
Q.6
a)
What do you understand by franchising? (3 marks)
b)
Identify the advantages and disadvantages of franchising to both the franchisee and the franchiser. (22 marks)
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