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- The following is the summarized balance sheet of Kaka Kuona Ltd. as at 30 November 2003:(Solved)
The following is the summarized balance sheet of Kaka Kuona Ltd. as at 30 November 2003:
Additional information:
1. In the past, Kaha Kuona Ltd.'s earnings per share (EPS) averaged Sh.6 and the
dividend payout rate was 50% or Sh.3 per share. For the year ended 30 November 2003,
the EPS declined to Sh.2.50. Because it was felt that this decline was temporary, the annum
dividend of Sh.3 per share was maintained for the financial year ended 30 November
2003, as well as for the first six months of the financial year ending 30 November 2004.
2. Recent projections, however, have caused management to revise downwards the
expected EPS. For the financial year ending 30 November 2004, the forecast of EPS as
been reduced to Sh.2 per share and for the financial year ending 30 November 2005,
adjusted to Sh.2.20.
3. Kaka Kuona Ltd.'s ordinary shares are currently selling in the market at Sh.15 per share.
Management of Kaka Kuona Ltd. is considering whether or not to retain the cash dividend of
Sh.3 per share for the next two financial years.
Required:
(a) Calculations to help determine whether it will be feasible to maintain dividends at Sh.3
per share for the next two financial years.
(b) Determine whether the company should replace the cash dividend with a bonus issue of
one share for every four ordinary shares.
(c) Explain the course of action that the management of Kaka Kuona Ltd. should take in
the light of the declining projections in dividend payouts.
Date posted: December 14, 2021.
- A sole trader’s capital position is as follows. He has estimated his drawings for 2010 at £12,500. Estimate his net profit for the year. (Solved)
A sole trader’s capital position is as follows
Date posted: December 14, 2021.
- The finance manager of Bidii Industries Ltd., which manufactures edible oils, has identified the following three projects for potential investment:(Solved)
The finance manager of Bidii Industries Ltd., which manufactures edible oils, has identified the following three projects for potential investment:
Required:
(i) Evaluate each project using the net present value (NPV) method.
(ii) Which of the three projects should Bidii Industries Ltd. accept?
Date posted: December 14, 2021.
- Biashara Ltd. has the following capital structure:
The finance manager of Biashara Ltd. has a proposal for a project requiring Sh.45
million. He has proposed the following...(Solved)
Biashara Ltd. has the following capital structure:
The finance manager of Biashara Ltd. has a proposal for a project requiring Sh.45
million. He has proposed the following method of raising the funds:
- Utilize all the existing retained earnings
- Issue ordinary shares at the current market price.
- Issue 100,000 10% preference shares at the current market price of Sh.100 per
share which is the same as the par value.
- Issue 10% debentures at the current market price of Sh.1,000 per debenture.
Additional information:
1. Currently, Biashara Ltd. pays a dividend of Sh.5 per share which is expected to
grow at the rate of 6% due to increased returns from the intended project.
Biashara Ltd.'s price/earnings (P/E) ratio and earnings per share
(EPS) are 5 and Sh.8 respectively.
2. The ordinary shares would be issued at a floatation cost of 10% based in the
market price.
3. The debenture par value is Sh.1,000 per debenture.
4. The corporate tax rate is 30%.
Required:
Biashara Ltd.'s weighted average cost of capital (WACC).
Date posted: December 14, 2021.
- Approaches in preparing final accounts where there are insufficient records(Solved)
Approaches in preparing final accounts where there are insufficient records
Date posted: December 14, 2021.
- Give two reasons for incomplete records in accounting records(Solved)
Give two reasons for incomplete records in accounting records
Date posted: December 14, 2021.
- Examine the relative merits of leasing versus hire purchase as a means of acquiring capital assets.(Solved)
Examine the relative merits of leasing versus hire purchase as a means of acquiring capital assets.
Date posted: December 14, 2021.
- Malindi Leisure Industries is already highly geared by industry standards, but wishes to raise external capital to finance the development of a new beach resort.
Outline...(Solved)
Malindi Leisure Industries is already highly geared by industry standards, but wishes to raise external capital to finance the development of a new beach resort.
Outline the arguments for and against a rights issue by Malindi Leisure Industries.
Date posted: December 14, 2021.
- Uses of cash flow statements(Solved)
Uses of cash flow statements
Date posted: December 14, 2021.
- What is the impact of massive capital flight on the value of the domestic currency?(Solved)
What is the impact of massive capital flight on the value of the domestic currency?
Date posted: December 14, 2021.
- Why have African economies been characterized by much capital flight in the past?(Solved)
Why have African economies been characterized by much capital flight in the past?
Date posted: December 14, 2021.
- From the following balance sheet, prepare cash flow statement of Abc Ltd for the ended 31/12/2009(Solved)
From the following balance sheet, prepare cash flow statement of Abc Ltd for the ended 31/12/2009
Date posted: December 14, 2021.
- Format of cash flow statement(Solved)
Format of cash flow statement
Date posted: December 14, 2021.
- Clean Wash Ltd. manufactures and markets automatic washing machines. Among the hundreds of components which it purchases each year from external suppliers for assembling into...(Solved)
Clean Wash Ltd. manufactures and markets automatic washing machines. Among the hundreds of components which it purchases each year from external suppliers for assembling into the finished articles are drive belts, of which it uses 400,000 units per annum. It is considering converting its purchasing, delivery and stock control of this item to a Just-In-Time (JIT) system.
This will raise the number of orders placed but lower the administrative and other costs of placing and receiving orders. If successful, this will provide the model for switching most of its inwards supplies into this system.
Details of current and proposed ordering and carrying costs are given below:
To implement new arrangements will require a one-off reorganization costs estimated at Sh.140,000 which will be treated as revenue item for tax purposes. The rate of corporation tax is 32.5% and Clean Wash Ltd. can obtain finance at an effective cost of 18%. The life span of the new system is 8 years.
Required
(a) (i)The economic order quantity with current and proposed arrangements.
(ii) New Present Value (NPV) of the new arrangement. Is the new arrangement worthwhile?
(b) Briefly explain the nature and objectives of JIT purchasing arrangements concluded between components users and suppliers.
Date posted: December 14, 2021.
- Components of a cash flow statement(Solved)
Components of a cash flow statement
Date posted: December 14, 2021.
- In a company, an agency problem may exist between management and shareholders on one hand and the debt holders (creditors and lenders) on the other...(Solved)
In a company, an agency problem may exist between management and shareholders on one hand and the debt holders (creditors and lenders) on the other because management and shareholders, who own and control the company have the incentive to enter into transactions that may transfer wealth from debt holders to shareholders. Hence the need for agreements by debt holders in lending contracts.
Required:
(a) State and explain any four actions or transactions by management and shareholders that could be harmful to the interests of debt holders (sources of conflict).
(b) Write short notes on any four restrictive covenants that debt holders may use to protect their wealth from management and shareholder raids.
Date posted: December 14, 2021.
- Enumerate four advantages of convertible bonds from the point of view of the borrower.(Solved)
Enumerate four advantages of convertible bonds from the point of view of the borrower.
Date posted: December 14, 2021.
- List and explain five factors that should be taken into account by a businessman in making the choice between financing by short-term and long-term sources.(Solved)
List and explain five factors that should be taken into account by a businessman in making the choice between financing by short-term and long-term sources.
Date posted: December 14, 2021.
- The accountant of Mamba Sports Club has extracted the following information from the books of account for the year ended 31 March 2009(Solved)
The accountant of Mamba Sports Club has extracted the following information from the books of account for the year ended 31 March 2009
Date posted: December 14, 2021.
- Lynx Services Ltd., a debt collection agency, has estimated that the standard deviation of its daily net cash flow is Sh.22,750. The company pays Sh.120...(Solved)
Lynx Services Ltd., a debt collection agency, has estimated that the standard deviation of its daily net cash flow is Sh.22,750. The company pays Sh.120 in transaction cost every time it transfers funds into and out of the money market.
The rate of interest in the money market is 9.465%. The company uses the Miller-Orr Model to set its target cash balance. The minimum cash balance has been set at Sh.87,500.
Required:
(i) The company's target cash balance.
(ii) The lower and upper cash limit.
(iii) Lynx Services Ltd.'s decision rules.
Date posted: December 14, 2021.
- The following is the receipts and payments account of the Friendship Club for the year ended 31 December 2010.
a)Prepare an income and expenditure account for...(Solved)
The following is the receipts and payments account of the Friendship Club for the year ended 31 December 2010
a)Prepare an income and expenditure account for the year ended 31 December 2009
(b)Prepare a balance sheet at that date
Date posted: December 14, 2021.
- Briefly describe the benefits of the Central Depository System (CDS) to the following stakeholders.
(i) Government;
(ii) Capital Markets Authority and Nairobi Stock Exchange;
(iii) Investors.(Solved)
Briefly describe the benefits of the Central Depository System (CDS) to the following stakeholders.
(i) Government;
(ii) Capital Markets Authority and Nairobi Stock Exchange;
(iii) Investors.
Date posted: December 14, 2021.
- Explain the benefits that are enjoyed by investors because of the existence of organized security exchanges.(Solved)
Explain the benefits that are enjoyed by investors because of the existence of organized security exchanges.
Date posted: December 14, 2021.
- The CMA (Capital Markets Authority) has put in place several tax incentives to encourage investments in capital markets.
Highlight some of the tax incentives by the...(Solved)
The CMA (Capital Markets Authority) has put in place several tax incentives to encourage investments in capital markets.
Highlight some of the tax incentives by the Capital Markets Authority.
Date posted: December 14, 2021.
- Millennium Investments Ltd. wishes to raise funds amounting to Sh.10 million to
finance a project in the following manner:
Sh.6 million from debt; and
Sh.4 million from floating...(Solved)
Millennium Investments Ltd. wishes to raise funds amounting to Sh.10 million to finance a project in the following manner:
Sh.6 million from debt; and Sh.4 million from floating new ordinary shares.
The present capital structure of the company is made up as follows:
1. 600,000 fully paid ordinary shares of Sh.10 each
2. Retained earnings of Sh.4 million
3. 200,000, 10% preference shares of Sh.20 each.
4. 40,000 6% long term debentures of Sh.150 each.
The current market value of the company's ordinary shares is Sh.60 per share.
The expected ordinary share dividends in a year's time is Sh.2.40 per share.
The average growth rate in both dividends and earnings has been 10% over the past ten
years and this growth rate is expected to be maintained in the foreseeable future.
The company's long term debentures currently change hands for Sh.100
each. The debentures will mature in 100 years. The preference shares were issued four
years ago and still change hands at face value.
Required:
(i) Compute the component cost of:
- Ordinary share capital;
- Debt capital
- Preference share capital.
(ii) Compute the company's current weighted average cost of capital. (5 marks)
(iii) Compute the company's marginal cost of capital if it raised the additional Sh.10
million as envisaged. (Assume a tax rate of 30%).
Date posted: December 14, 2021.
- Format for the financial account of a non profit making organisation(Solved)
Format for the financial account of a non profit making organisation
Date posted: December 14, 2021.
- Explain the main difference between the financial of non-profit - oriented organizations and of profit - oriented organizations(Solved)
Explain the main difference between the financial of non-profit - oriented organizations and of profit - oriented organizations
Date posted: December 14, 2021.
- Beta Ltd is reviewing the financial statements of two companies, Zeta Ltd and Omega Ltd. The companies trade as wholesalers, selling electrical goods to retailers...(Solved)
Beta Ltd is reviewing the financial statements of two companies, Zeta Ltd and Omega Ltd. The companies trade as wholesalers, selling electrical goods to retailers on credit. Their most recent financial statements appear below.
Required:
a)Calculate for each company a total of eight ratios which will assist in measuring the three aspects of profitability, liquidity and management of the elements of working capital. Show all workings.
b)Based on the ratios you have calculated in (a), compare the two companies as regards their profitability, liquidity and working capital management.
c)Omega Ltd is much more highly geared than Zera Ltd. What are the implications of this for the two companies?
Date posted: December 14, 2021.
- The Apollo Credit Collection Company Ltd. employs agents who collect hire purchase instalments and other outstanding amounts on a door to door basis from Monday...(Solved)
The Apollo Credit Collection Company Ltd. employs agents who collect hire purchase instalments and other outstanding amounts on a door to door basis from Monday to Friday. The agents bank their collections at the close of business everyday from
Monday to Thursday. At the close of business on Friday the week's bankings are withdrawn and, together with Friday's collections, are remitted to the head office. The takings are evenly spread daily and weekly. The budget for the next year
shows that total collections will amount to Sh.26 million. The bankings are used to reduce an overdraft whose interest rate is 19%.
The collection manager has suggested that instead of banking collections, they be remitted daily to the head office by the collectors.
Required:
Determine the increase in annual interest if the collection manager's suggestion was adopted.
Date posted: December 14, 2021.
- Compute the relevant ratios for ABC ltd(Solved)
Compute the relevant ratios for ABC ltd
Date posted: December 14, 2021.