UNIVERSITY EXAMINATIONS: 2019/2020
EXAMINATION FOR THE DEGREE OF BACHELOR OF BUSINESS
IN INFORMATION TECHNOLOGY
BUSS 203: BUSINESS FINANCE
FULL TIME/ PART TIME/ DISTANCE LEARNING
DATE: MAY, 2020 TIME: 6 HOURS
INSTRUCTIONS: Answer ALL Questions
SECTION TWO: (20 MARKS)
QUESTION ONE
a) You are a bachelor of Business and information technology (BBIT) student at the KCA
University currently studying Business finance in the current semester.
Explain how the knowledge acquired from the study of this unit will be useful to you
(10 Marks)
b) The existing capital structure of XYZ Ltd is given as follows:
Additional information:
1) Ordinary shares of this firm are currently selling at sh.60 each. The 12% Debentures
and 10% preference shares are currently selling at sh.80 and sh 30 respectively
2) The most recent dividend paid by this company is sh.2.This is expected to grow at the
rate of 10% each year in perpetuity
3) The corporation tax rate applicable is 30%
Required:
a) The cost of equity capital (2 Marks)
b)The cost of 12% Debenture capital (2 Marks)
c) The cost of 10% preferred stock (2 Marks)
d) Weighted average cost of capital (4 Marks)
(Total: 20 Marks)
SECTION THREE: (20 MARKS)
QUESTION ONE
a) Firms strive to achieve various financial and non-financial objectives which at times
overlaps with each other in some cases conflict with each other. Explain the overlaps and
conflicts that may arise amongst the objectives that firms strive to achieve in the context of a
corporate set up (8 Marks)
b) Omondi expects to make a deposit of sh.500, 000 at the end of the year 2020.He expects to
make a deposit of sh.200, 000 at the end of each subsequent year. The sum deposited will
earn interest at the rate of 8% per annum interest compounded annually.
Required:
i) The cumulative amount in the account at the end of the year 2024 (4 Marks)
ii) The return he expect to earn over the entire period (2 Marks)
c) Kiwanda Limited is considering the purchase of a new machine. Two alternative
machines, Pesi TZO and Upesi MO2, which will cost sh. 6,000,000 and sh. 5,000,000
respectively, are available in the market. The net cash inflows of each machine are estimated
as follows:
Kiwanda’s cost of capital is 11% per annum.
Required:
Compute the net present value of each machine ( 6 Marks)
(Total:20 Marks)
