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Financial Modelling And Forecasting Question Paper
Financial Modelling And Forecasting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
NIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 202: FINANCIAL MODELLING AND FORECASTING
DATE: APRIL 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer Question ONE and any other TWO questions
QUESTION ONE
a) You are provided with the data below:
Week Advertising Sales
1 4 16
2 27 37
3 18 33
4 7 23
5 30 34
6 12 32
7 18 24
8 23 29
9 19 26
10 12 26
Required:
Determine the relationship between adverstising and sales (10 Marks)
b) The table below shows the farm population ( in millions) for the years 1973-1983.
Year 1992 1993 199
4
1995 1996 1997 1998 1999 2000 2001 2002
Sales (
millions
)
143 76 106 184.2 167 234 197. 177. 287. 196 227
Required
(i) Construct a 5 year moving average ( 5 Marks)
2
(ii) Construct a 4 year moving average ( 5 Marks)
(iii) discuss two methods of smoothing a time series ( 3 Marks)
(iv) Discuss three approaches to budgeting (3 Marks)
(v) Discuss the components of a master budget ( 4 Marks)
QUESTION TWO
Twelve administrative trainees in a company took an aptitude tes in two parts, one designed to test
ability to do appropriate calculations and the other designed to test skill in interpreting results. Their
scores were as follows:
Trainee A B C D E F G H J K L M
CALulation Score 23 56 74 29 82 45 36 51 60 55 52 88
Interpretation score 16 38 65 39 32 51 11 19 47 54 43 50
a) Obtain the interpretation on calculation regression line, using the method of semi averages
(4 Marks)
b) Trainee N obtained 72 in the calculation but was absent for interpretation test. Use the regression
line to estimate trainee N’s interpretation score (4 Marks)
The following summarized financial statements relate to Jasmin Ltd for the year ended 31 October
2008;
Income statement
Sh.’000’
Sales 450,000
Profit before tax 81,000
Less: taxation 27,000
Profit after tax 54,000
Dividend 13,500
Retained earnings 40,500
Balance sheet
Sh.’000’ Sh.’000’
Non-current assets 285,000
Current assets 219,000
Less: current liabilities (154,500)
Working capital 64,500
Net assets 349,500
Financed by:
Ordinary share capital 75,000
Reserves 135,000
3
Shareholder equity 210,000
Longterm liability
Bank loan 139,500
Total equity and long term liability 349,500
The company is in the process of preparing a financial budget for the year ending 31 October 2009.
Additional information:
1. From past experience, the management of the company have determined that for each sh.1 of
additional sales, a total investment of sh.1.50 in fixed assets, stock and debtors would be
required.
2. The management have also determined that, for each sh.1.00 of additional sales, the company
would require trade credit amounting to sh.0.60.
3. The company has maintained a constant dividend payout ratio.
4. Any requirements for internal funds are to be met from the retained earnings for the year
ending 31 October 2009.
Required
i) External finance (if any) required in year 2009 assuming that the sales for the year increase
by 20%. (8 Marks)
ii) Expected maximum growth in sales in year 2009 assuming that the company only utilizes
internet funds. (2 Marks)
iii) Briefly explain three limitations of your estimates in (b) (i) above. (2 Marks)
QUESTION THREE
The financial analyst for Global inc has provided you with the information below.
Week Sales (Thousands) Price Advertising
1 10 Kshs 1.30 9
2 6 2.00 7
3 5 1.70 5
4 12 1.50 14
5 10 1.60 15
6 15 1.20 12
7 5 1.60 6
8 12 1.40 10
9 17 1.00 15
4
10 20 1.10 21
Required: using the multiple regression model, construct a model that can be used to estimate the level
of sales given the price and advertising costs ( 20 Marks)
QUESTION FOUR
Setrigt r Ltd
Comparative Income Statement
Less Cost of Goods Sold 200,000 140,000
Gross Profit on sales 300,000 210,000
Less Operating Expenses 260,000 243,000
Loss on sale of marketable securities 0 1,000
Net income /Loss before tax 40,000 34,000
Taxation for the year -10,000
30,000 34,000
Dividends: 1,000
Interim paid 4,000
Final proposed -5,000
25,000 34,000
Setright Ltd
Balance Sheet
1997 1998
cash and cash equivalents 10,000 48,300
Marketable securities 20,000 5,000
Accounts receivable 36,000 20,700
Inventory 120,000 122,000
Plant and Equipment ( Net of accumulated
Depreciaion) 300,000 285,000
Totals 486,000 481,000
Liabilities and stock holders
equity
Dividends payable 4,000
Taxation 10,000
Accounts Payable 50,000 73,000
Accrued Expenses Payable 17,000 14,000
5
Note Payable 245,000 253,000
Capital stock( at no par value) 120,000 135,000
Retained Earnings 40,000 6,000
Total 486,000 481,000
Notes:
1. The company purchased plant assets for shs 20,000 paying shs 2,000 in cash and issuing a note
payable for the 18,000 balance
2. during the year , the company repaid a sh 10,000 note payable but incurred an additional shs
18,000 in long-term debt as described in 1 above
3. the accounts receivable are net of provision for doubtful debts of shs 4,000 for 1997 and shs
2,300 for 1998.
Required:
i) Prepare a statement of cash flows for 1998 ( use the indirect method). (13 Marks)
ii) Explain how the company achieved a positive cash flow from operationg activities despite
having a net loss for the year ( 5 Marks)
iii) Is the company’s financial position improving or detoriating
QUESTION FIVE
Prepare a cash budget for the months of June, July, August 2004
from the following information:
1) Opening cash balance in June Rs.7,000.
2) Cash sales for June Rs.20,000; July Rs.30,000 and August
Rs.40,000.
3) Wages payable Rs.6,000 every month.
4) Interest receivable Rs.500 in the month of August.
5) Purchase of furniture for Rs.16,000 in July.
6) Cash Purchases for June Rs.10,000; July Rs.9,000 and
August Rs.14,000.
(20 Marks)
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