Get premium membership and access revision papers, questions with answers as well as video lessons.

Issues In Financial Management Question Paper

Issues In Financial Management

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2011

1
UNIVERSITY EXAMINATIONS: 2010/2011
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
ISSUES IN FINANCIAL MANAGEMENT (D+E)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
Question One
a) As an investment manager you are given the following information:
Investment in Equity
shares of
A. Cement Ltd
Steel Ltd
Brewery Ltd
B. Government of
Kenya Bonds
Initial price shs.
50
70
90
2,000
Dividends shs.
4
4
4
280
Market price at
the end of the
year shs
100
120
270
2010
Beta risk factor
0.8
0.5
0.5
0.09
You are required to calculate:
i) Expected rate of returns of portfolio in each using Capital Asset Pricing Model
ii) Average Return of Portfolio
b) (i) What do you understand by leveraged buyout and management buyout? (2 Marks)
(ii) Explain the steps involved in evaluation of LBO. (8 Marks)
2
c) i) Distinguish between the term merger and acquisition (2 Marks)
ii) Outline the reasons for acquisitions and explain why a company may want to be
acquired (8 Marks)
Question Two
a) What do you understand by 'diversification' and 'disinvestment' strategies? (2 Marks)
b) Explain the circumstances when such strategies suit a corporate enterprise. (8 Marks)
c) Explain Five Limitations of portfolio theory. (10 Marks)
Question Three
a) Explain the assumptions of Black - Scholes model.
b) A Ltd is considering the acquisition of B Ltd. The financial data at the time of acquisition is
as follows:
A Ltd B Ltd
Net profit after tax 60 12
Number of shares 12 5.0
Earnings per share 5 2.40
Market price per share 75 24
Price earning ratio 15 10
Assuming that the net profit after tax of the two companies would remain the same after
amalgamation, using Earnings Approach, explain the effect on EPS of the merged company under
the following situations:
i) A Ltd offers to pay sh. 60 per share to the shareholders of B Ltd.
ii) A Ltd offers to pay sh. 80 per share to the shareholders of B Ltd
iii) The amount in both cases is to be paid in the form of shares of A Ltd
Do you have any comments to offer ? (10 Marks)
c) Explain the benefits of E- commerce to an organization (8 Marks)
d) Explain the terms: giving practical examples in each case (8 Marks)
i) Spin-offs
ii) Split-offs
3
iii) Split-ups
iv) Buy-ins
Question Four
a) Explain the Interorganizational Information Systems(IOS) In the context of E- commerce .
(10 Marks)
b) Low Ltd and High Ltd had returns and measures of risk given by their standard deviation as
follows:
Investment Return standard deviation
Low 20% 10%
High 28% 16%
Calculate the risk in a portfolio of 70% Low and 30% High if the correlation between their returns is:
i) Positive 1
ii) Negative 1
iii) Zero
(10 Marks)
Question Five
a) Calculate the value of a call option using the B-S model given the following information:
Current marker price of the share sh.75
Volatility 0.45
Exercise price sh. 80
Risk-free rate 0.12
Time to expiration 6 months (10 Marks)
b) Explain the Pre and Post Aquisition problems that firms are likely to face. (10 Marks)

Issues In Financial Management Question Paper

More Question Papers

Popular Exams

Mid Term Exams

End Term 1 Exams

End Term 3 Exams

Opener Exams

Full Set Exams