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- Chuma Company Ltd is considering various levels of debt. Currently it has no debt. It has a total
market value of Sh.30 million. By undertaking debt...(Solved)
Chuma Company Ltd is considering various levels of debt. Currently it has no debt. It has a total
market value of Sh.30 million. By undertaking debt it believes that it can achieve a net tax advantage
equal to 20% of the amount of debt. However the company will incur bankruptcy and agency costs
as well as lenders increasing their interest rate if it borrows too much. The company‟s
managing director believes that the company can borrow up to Sh.10 million without incurring
any of these costs. However, each additional Sh.10 million increment in borrowing is expected to
result in the three costs cited being incurred. Moreover, the three costs are expected to increase at
an increasing rate with leverage. The present value cost of various levels of debt is as follows:
Required:
Advise the managing director on the optimal amount of debt for Chuma Company.
Date posted: April 16, 2021.
- Mr. Mlachake is currently holding a portfolio consisting of shares of four companies quoted on the Bahati Stock Exchange as follows:
The current market return is...(Solved)
Mr. Mlachake is currently holding a portfolio consisting of shares of four companies quoted on the Bahati Stock Exchange as follows:
The current market return is 14% per annum and the treasury bills yield is 9% per annum.
Required:
(i) Calculate the risk of Mlachake‟s portfolio relative to that of the market.
(ii) Explain whether or not Mlachake should change the composition of his portfolio.
Date posted: April 16, 2021.
- Briefly explain three practical uses of the capital asset pricing model.(Solved)
Briefly explain three practical uses of the capital asset pricing model.
Date posted: April 16, 2021.
- Imprisonment is one of the penalties for non-compliance. TRUE or FALSE?(Solved)
Imprisonment is one of the penalties for non-compliance. TRUE or FALSE?
Date posted: April 15, 2021.
- What part of the Companies Act relates to foreign companies?(Solved)
What part of the Companies Act relates to foreign companies?
Date posted: April 15, 2021.
- Outline the examples of access controls.(Solved)
Outline the examples of access controls.
Date posted: April 15, 2021.
- Outline the roles of International Financial Reporting Standards in preparation of financial statements.(Solved)
Outline the roles of International Financial Reporting Standards in preparation of financial statements.
Date posted: April 15, 2021.
- State the similarities between debentures and shares.(Solved)
State the similarities between debentures and shares.
Date posted: April 15, 2021.
- State the advantages of a trust deed.(Solved)
State the advantages of a trust deed.
Date posted: April 15, 2021.
- Outline the contents of a trust deed.(Solved)
Outline the contents of a trust deed.
Date posted: April 15, 2021.
- State the disadvantages of floating charges.(Solved)
State the disadvantages of floating charges.
Date posted: April 15, 2021.
- State the advantages of floating charges.(Solved)
State the advantages of floating charges.
Date posted: April 15, 2021.
- What chapter number of the laws of Kenya is the Cooperatives Societies Act?(Solved)
What chapter number of the laws of Kenya is the Cooperatives Societies Act?
Date posted: April 15, 2021.
- What is the maximum number of persons in a sole trader?(Solved)
What is the maximum number of persons in a sole trader?
Date posted: April 15, 2021.
- What are the two fundamental principles of company law?(Solved)
What are the two fundamental principles of company law?
Date posted: April 15, 2021.
- You have been retained by the management of an international group to advise on the management of its
foreign exchange exposure.
Required:
(a) Explain the main types of...(Solved)
You have been retained by the management of an international group to advise on the management of its
foreign exchange exposure.
Required:
(a) Explain the main types of foreign exchange exposure
(b) Advise on policies which the corporate treasurer could consider to provide valid and relevant methods of reducing exposure to foreign exchange risk.
Date posted: April 15, 2021.
- What economic benefits might countries gain from forming a common market?(Solved)
What economic benefits might countries gain from forming a common market?
Date posted: April 15, 2021.
- State the differences between free trade areas, customs unions and common markets.(Solved)
State the differences between free trade areas, customs unions and common markets.
Date posted: April 15, 2021.
- Explain the features of structural adjustment programmes.(Solved)
Explain the features of structural adjustment programmes.
Date posted: April 15, 2021.
- State and explain the types of euro-currency loans.(Solved)
State and explain the types of euro-currency loans.
Date posted: April 15, 2021.
- ABC Ltd a UK firm has been invited to tender for a contract in Blueland with the local currency of Blues
(B). The company thinks that...(Solved)
ABC Ltd a UK firm has been invited to tender for a contract in Blueland with the local currency of Blues
(B). The company thinks that the contract should cost £1 850, 000 and is prepared to price the contract
at £2 million. The current exchange rate for Blues and £ is £1: B2.80. The company therefore bids for
B5.6 million. The contract will not be awarded until after six months. A 6 month currency option to sell
B5.6 million at an exchange rate of £1: B2.8 is currently costing £40 000.
ABC Ltd can either buy the option or enter into forward Exchange contract at a rate of £1: B 2.80,
Assume that the company fails to win the contract and the spot rate in 6 months time is £1:B2.50.
Required:
Advice the company on which alternative is better.
Date posted: April 15, 2021.
- XYZ Ltd, a UK firm has bought goods from a US supplier and must pay USD 4 million in 3 months time.
The company finance...(Solved)
XYZ Ltd, a UK firm has bought goods from a US supplier and must pay USD 4 million in 3 months time.
The company finance director wishes to hedge against the foreign exchange risk and is considering 3
methods:
- Using the forward exchange contract
- Using the money market hedge
- Using a lead payments
Annual interest rate and foreign exchange rate are given below:
Required
Advise the company on the best method to use.
Date posted: April 15, 2021.
- Assume that the following quotation is given:
Spot rate £1: USD1.635 - USD 1.6385
One month forward...(Solved)
Assume that the following quotation is given:
Spot rate £1: USD1.635 - USD 1.6385
One month forward 0.5 – 0.47 cents premium
Required:
Compute the cost of the forward cover for a customer
Buying dollars 1 month forward.
Selling dollars one month forward.
Date posted: April 15, 2021.
- Assume that the foreign currency (F) has been quoted against the £ as follows :
Spot rate ...(Solved)
Assume that the foreign currency (F) has been quoted against the £ as follows :
Spot rate £1: F2156 – 2166
3 months forward rate £1: F2207 – 2222
Required:
1. Determine the amount required in sterling pound to buy 2 million foreign currencies
• At the spot
• In 3 months time under the forward exchange contract.
2. Compute the amount a customer would get if he were to sell 2 million foreign currency.
• At the spot rate
• In 3 months time under forward exchange contract
Date posted: April 15, 2021.
- State and explain the ways in which the exchange rate exposure can be perceived.(Solved)
State and explain the ways in which the exchange rate exposure can be perceived.
Date posted: April 15, 2021.
- Outline the advantages of using fixed exchange rates.(Solved)
Outline the advantages of using fixed exchange rates.
Date posted: April 15, 2021.
- Define the term fixed exchange rate.(Solved)
Define the term fixed exchange rate.
Date posted: April 15, 2021.
- Assume that the direct quote is deuchemark is DM 1 - USD 0.5 while the general interest rate in US is
6% and general interest rate...(Solved)
Assume that the direct quote is deuchemark is DM 1 - USD 0.5 while the general interest rate in US is
6% and general interest rate in Germany is 3%.
Required:
Compute the percentage change in direct quote and the new exchange rate.
Date posted: April 15, 2021.
- Assume that the direct quote between the USD and £ is £1 = USD 1.5 and that the inflation rate in UK is
10% and the...(Solved)
Assume that the direct quote between the USD and £ is £1 = USD 1.5 and that the inflation rate in UK is
10% and the inflation rate in the US is 6%
Required
Compute the % change in the direct quote and determine the new exchange rate.
Date posted: April 15, 2021.
- Dimango Company is considering whether it would be financially advisable to retire its existing long term
debt with a cheaper loan. The current loan of Sh...(Solved)
Dimango Company is considering whether it would be financially advisable to retire its existing long term
debt with a cheaper loan. The current loan of Sh 10 million has an annual interest charge of 15% and has 10
years to maturity. The company has Sh 125,000 of unamortized loan expenses still in the books.
If the company decides to redeem the loan, there is an early payment penalty amounting to 10% of the loan.
A new Sh 10 million loan can be raised at 13% per annum for a ten year period. It is expected that
underwriting costs will amount to Sh 600,000. In addition to these costs, the company will be further
required to pay interest for the two months which would allow the normal interest payment due to be
reached for the old loan.
Dimango Company is in the 40% income tax bracket.
Required:
(a) Calculate the net amount of cash investment required for the refunding of the loan.
(b) Compute the annual cash savings which result from refunding
(c) Determine whether refunding is advantageous to the company
(PVIFA 8% = 6.71)
Date posted: April 15, 2021.