Management theory is the body of knowledge created through scientific or systematic method. Studying management theory has several merits as follows;
i)Managers are able to avoid mistakes that were done before.
ii)It is important in that problems are solved systematically.
iii)Managers are able to maximize profits, which is the main aim of the organisation.
iv)It is easy to predict what will happen in the organization in the near future.
v)It enables comparison of the past and the present hence critical decisions are made.
vi)Helps managers to come up with high quality goods and services which enable them to survive the
competition.
Hildah Wafula answered the question on March 5, 2019 at 08:01
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Date posted: February 12, 2019. Answers (1)
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Date posted: February 12, 2019. Answers (1)
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The following six have been submitted for inclusion in 1998 capital expenditure budget for
Limuru Ltd.
Required:
(a) Rates of return (to the nearest half percent) for projects B, C and D and a ranking of all
projects in descending order.
b) Compute the payback reciprocal for projects B and C.
(c) Compute the N.P.V of each project using 16% as discount rate and rank all projects
Date posted: February 12, 2019. Answers (1)
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Identify the various methods of issuing new ordinary shares to shareholders.
Date posted: February 12, 2019. Answers (1)
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Date posted: February 12, 2019. Answers (1)
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projects appraisal and explain the advantages and disadvantages of each method.(Solved)
Using illustrative examples, explain the payback period and accounting rate of return methods of
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Date posted: February 12, 2019. Answers (1)
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Date posted: February 12, 2019. Answers (1)
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Date posted: February 12, 2019. Answers (1)
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Date posted: February 12, 2019. Answers (1)
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its account on the calendar year basis.(Solved)
The following information is provided in respect to the affairs of Pote Limited which prepares
its account on the calendar year basis.
Required:
a) Calculate the rate of stock turnover expressed:
i) as a ratio;
ii)in days for each of the years 1994 and 1995.
b) Calculate the rate of collection of debtors, in days, for each of the years 1994 and 1995.
(3 marks)
c) Calculate the rate of payment to creditors, in days, for each year 1994 and 1995.
(3 marks)
d) Show the cash operating cycle for each year.
e) Comment on the results.
Date posted: February 12, 2019. Answers (1)
- Mr. Castro uses a 20% hatch system of timing when to invest in a stock market. In a
given year, the top of a given share...(Solved)
Mr. Castro uses a 20% hatch system of timing when to invest in a stock market. In a
given year, the top of a given share was Sh.150 and its bottom was Sh.90. During the
year, the company paid an interim DPS of Sh.1.50 and a final DPS of Sh.4.50.
Determine the % return on investment.
Date posted: February 12, 2019. Answers (1)
- With reference to capital market, define the following terms:
i) Contango operation
ii) Backwardation
iii) Stags
iv) Role of investment banker(Solved)
With reference to capital market, define the following terms:
i) Contango operation
ii) Backwardation
iii) Stags
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Date posted: February 12, 2019. Answers (1)
- What are the advantages of having a farmers' bank compared with an ordinary
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What are the advantages of having a farmers' bank compared with an ordinary
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Date posted: February 12, 2019. Answers (1)
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Why do different sources of finance have different costs?
Date posted: February 12, 2019. Answers (1)
- Love Ltd is considering acquiring Beautiful Ltd. For the past six years, the profits of Beautiful
Ltd. has been as follows.(Solved)
Love Ltd is considering acquiring Beautiful Ltd. For the past six years, the profits of Beautiful
Ltd. has been as follows.
Love Ltd expects to pay a DPS of Sh.3.20. The current MPS is Sh.40. The growth in dividends
will be matched with the growth in earnings of Beautiful Ltd. once acquired. The future
expected profits p.a. (equal to the average of past profits) will also grow a rate equal to past
profits growth rate. Love Ltd is an all equity firm. Beautiful Ltd has 50 million ordinary shares.
Required:
a) Compute the cost of equity of Love Ltd.
b) Using the cost of equity computed in (a) above, determine the maximum price with
Love Ltd should pay for each share of Beautiful Ltd to acquire it.
c) What is the significance of valuation of securities.
Date posted: February 12, 2019. Answers (1)
- Swale Ltd. wants to raise Shs. 15,000,000 in additional funds through a rights offering. The
following statements were prepared just before the planned rights offerings:(Solved)
Additional information:
i) The company had a price-earnings ratio of 7.5 at the time of the rights offering. Its
dividend payout ratio is 40%.
i i) The proposed rights offering subscription price per share is Sh.15.
iii) No change is expected in the return on total assets or dividend payout ratio after the
rights offering.
Required:
a) How many rights are required to buy one new share?
b) Calculate the return on total assets.
c) Calculate the following immediately before the rights issue:
- Dividend per share;
- Market price per share.
d) Calculate the dividend per share and market price per share one year after the rights of
offering and state whether you would recommend the rights offering. (Give reasons)
e) Prepare the company's balance sheet immediately after the rights offering under (c)
above.
Date posted: February 12, 2019. Answers (1)
- The Kitale Maize Mills is contemplating the purchase of a new high-speed grinder to replace an
existing one. The existing grinder was purchased two years ago...(Solved)
The Kitale Maize Mills is contemplating the purchase of a new high-speed grinder to replace an
existing one. The existing grinder was purchased two years ago at an installed cost of Sh.300,000.
The grinder was estimated to have an economic life of 5 years but a critical analysis of its
performance now shows it is usable for the next five years with no resale value.
The new grinder would cost Sh.525,000 and require Sh.25,000 in installation costs. It has a five
year usable life. The existing grinder can currently be sold for Sh.350,000 without incurring any
removal costs. To support the increased business resulting from purchase of the new grinder,
accounts receivable would increase by Sh.200,000, inventories by Sh.150,000 and trade creditors
by Sh.290,000. At the end of 5 years the new grinder would be sold to net Sh.145,000 after
removal costs and before taxes. The company provides for 40% taxes on ordinary income. The
estimated profit before depreciation and taxes over the five years for both machines are given as
follows:
The company uses straight line method of depreciation for both machines.
Required:
a) Calculate the initial investment associated with the replacement of the existing grinder
with the new one. Show your full workings.
b) Determine the incremental operating cash flows associated with the proposed grinder
replacement.
c) Calculate the terminal cash flow expected from the proposed grinder replacement.
Date posted: February 12, 2019. Answers (1)
- The most recent financial data for the Rare Watts disclose the following:
Dividend per share Sh.3.00
Expected annual dividend growth rate 6 percent
Current required rate of return...(Solved)
The most recent financial data for the Rare Watts disclose the following:
Dividend per share Sh.3.00
Expected annual dividend growth rate 6 percent
Current required rate of return 15 percent
The company is considering a variety of proposals in order to redirect the
firm‟s activities. The following four alternatives have been suggested:
1. Do nothing in which case the key financial variables will remain unchanged.
2. Invest in venture that will increase the dividend growth rate to 7% and lower
the required rate of return to 14%.
3. Eliminate an unprofitable product line. The action will increase the dividend
growth rate to 8% and raise the required rate of return to 17%.
4. Acquire a subsidiary operation from another company. This action will increase
the dividend growth rate to 9% and required rate of return to 18%.
Required:
For each of the proposed actions, determine the resulting impact price and recommend
the best alternative.
Date posted: February 12, 2019. Answers (1)
- The valuation of ordinary shares is more complicated than the valuation of bonds and
preference shares. Explain the factors that complicate the valuation of ordinary shares.(Solved)
The valuation of ordinary shares is more complicated than the valuation of bonds and
preference shares. Explain the factors that complicate the valuation of ordinary shares.
Date posted: February 12, 2019. Answers (1)
- The Weka Company Ltd. has been considering the criteria that must be met before a capital
expenditure proposal can be included in the capital expenditure programme....(Solved)
The Weka Company Ltd. has been considering the criteria that must be met before a capital
expenditure proposal can be included in the capital expenditure programme. The screening
criteria established by management are as follows:
1. No project should involve a net commitment of funds for more than four years.
2. Accepted proposals must offer a time adjusted or discounted rate of return at least
equal to the estimated cost of capital. Present estimates are that cost of capital as 15
percent per annum after tax.
3. Accepted proposals should average over the life time, an un adjusted rate of return on
assets employed (calculated in the conventional accounting method) at least equal to the
average rate of return on total assets shown by the statutory financial statements
included in the annual report of the company.
A proposal to purchase a new lathe machine is to be subjected to these initial screening
processes. The machine will cost Shs. 2,200,000 and has an estimated useful life of five years at
the end of which the disposal value will be zero. Sales revenue to be generated by the new
machine is estimated as follows:
Additional operating costs are estimated to be Shs. 700,000 per annum. Tax rates may be
assumed to be 35% payable in the year in which revenue is received. For taxation purpose the
machine is to be written off as a fixed annual rate of 20% on cost.
The financial accounting statements issued by the company in recent years shows that profits
after tax have averaged 18% on total assets.
Required:
Present a report which will indicate to management whether or not the proposal to purchase the
lathe machine meets each of the selection criteria.
Date posted: February 12, 2019. Answers (1)