Circumstances under which a company would prefer to use short term debt financing
(i) For family-owned business or where dilution of ownership is not required. This is because debt does not provide ownership stake in business, rather creditors.
(ii) Debt is cheaper compared to equity
(iii) where shareholder approval is not required.
(iv) It’s a cost-effective form of financing since interest is tax deductible, leading to savings
francis1897 answered the question on November 1, 2022 at 12:03
- Kikwetu Enterprise is considering purchasing a five-year sh.1,000 par value debenture which is currently trading on the securities exchange is at sh.950. The debenture has...(Solved)
Kikwetu Enterprise is considering purchasing a five-year sh.1,000 par value debenture which is currently trading on the securities exchange is at sh.950. The debenture has a coupon rate of interest of 12% per annum. Kikwetu Enterprises’ required rate of return is 16%.
Required:
(i) The intrinsic value of the debenture.
(ii) Advice Kikwetu enterprises on whether or not to purchase the debenture.
Date posted: November 1, 2022. Answers (1)
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John Juma borrowed sh.500,000 on 1 May 2022 from a local bank repayable semi-annually over a two-year period. The interest rate on the loan is 8% per annum.
Required:
A loan repayment schedule for the two-year period.
Date posted: November 1, 2022. Answers (1)
- Islamic finance and investment have experienced substantial and unprecedented growth in recent years.
With reference to the above statement, discuss for Islamic finance drivers.(Solved)
Islamic finance and investment have experienced substantial and unprecedented growth in recent years.
With reference to the above statement, discuss for Islamic finance drivers.
Date posted: November 1, 2022. Answers (1)
- Explain the following terms as used in finance:
(i) Crypto-currency.
(ii) Block chain technology.(Solved)
Explain the following terms as used in finance:
(i) Crypto-currency.
(ii) Block chain technology.
Date posted: November 1, 2022. Answers (1)
- The following is the capital structure of Kenland Ltd.:
...(Solved)
The following is the capital structure of Kenland Ltd.:
Sh. "000"
Ordinary share capital (par value sh.100) 120,000
Preference share capital (par value sh.100) 52,500
Debentures (par value sh.1,000) 40,500
213,000
Additional information:
1. The company has paid ordinary dividend of sh.2.5. The dividend is expected to grow at a constant rate of 10% in the future and floatation costs of 12% of the market price.
2. The current market price of one ordinary share of Kenland Ltd. Is sh.120.
3. New preference shares can be sold at sh.140 per share with a dividend of sh.15 per share and floatation costs of sh.8 per share.
4. The company pays out all its earnings as dividends.
5. The company will sell 14% debentures with a maturity of 10 years at sh.1,100 per debenture.
6. The par value of the debenture is sh.1,000
Corporate tax rate is 30%
Required:
(i) The cost of ordinary share capital.
(ii) The cost of preference share capital.
(iii) The cost of debenture capital.
(iv) The market weighted average cost of capital.
Date posted: November 1, 2022. Answers (1)
- In a finance and investment seminar, one of the facilitators noted that, “Management of debtors is crucial in working capital management”.
With reference to the above...(Solved)
In a finance and investment seminar, one of the facilitators noted that, “Management of debtors is crucial in working capital management”.
With reference to the above statement, discuss three factors that might influence the level of debtors in a firm.
Date posted: November 1, 2022. Answers (1)
- Explain the following terms as used in the valuation of securities
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(ii) Investment value.(Solved)
Explain the following terms as used in the valuation of securities
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Date posted: November 1, 2022. Answers (1)
- The following information relates to Mafuta Safi Ltd.:
...(Solved)
The following information relates to Mafuta Safi Ltd.:
Sh.
"000"
Purchase of raw materials (all on credit) 6,700
Usage of raw materials 6,500
Sales of finished goods (all on credit) 25,000
Cost of sales (finished goods) 18,000
Average creditors 1,400
Average raw materials inventory 1,200
Average work in progress 1,000
Average finished goods inventory 2,100
Average debtors 4,700
Assume a 365 days year
Required:
The length of the operating cash cycle.
Date posted: November 1, 2022. Answers (1)
- Citing three reasons, justify the time preference value for money.(Solved)
Citing three reasons, justify the time preference value for money.
Date posted: November 1, 2022. Answers (1)
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Explain three causes of conflict between shareholders and external auditors.
Date posted: November 1, 2022. Answers (1)
- Sunlight Limited intends to invest in project Y or project Z.
The following are the expected net cash flows from the projects
...(Solved)
Sunlight Limited intends to invest in project Y or project Z.
The following are the expected net cash flows from the projects
Project
Y Z
Year Sh. Sh.
0 (12,000,000) (10,000,000)
1 3,000,000 4,000,000
2 3,000,000 3,000,000
3 3,200,000 2,000,000
4 2,000,000 4,000,000
5 1,000,000 2,000,000
The company’s cost of capital is 12%
Required:
(i) Calculate the profitability index for each project.
(ii) Advise the management on the project to invest in.
Date posted: November 1, 2022. Answers (1)
- With regard to sources of finance. Explain the following terms:
(i) Factoring
(ii) Business angel(Solved)
With regard to sources of finance. Explain the following terms:
(i) Factoring
(ii) Business angel
Date posted: November 1, 2022. Answers (1)