W1-2-60-1-6
JOMO KENYATTA UNIVERSITY
OF
AGRICULTURE AND TECHNOLOGY
University Examinations 2014/2015
THIRD YEAR FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE AND FOURTH YEAR FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF PURCHASING AND SUPPLIES MANAGEMENT
HBC 2206/HPS 2304: FINANCIAL MANAGEMENT
DATE: AUGUST 2014 TIME: 2 HOURS
INSTRUCTIONS: ANSWER QUESTION ONE (COMPULSORY) AND ANY OTHER TWO QUESTIONS
Question One (30 Marks)
a) Discuss the scope of financial management. (6 Marks)
b) Outline any three types of investments. (6 Marks)
c) Consider a four year project which promises the following cashflows:
Year 1 2 3 4
Cashflows ‘000’ 120 80 60 80
The initial outlay is Kshs. 300,000 with a salvage value of Kshs. 50,000.
Required:
(i) Calculate IRR of the project. (6 Marks)
d) Explain any six limitations of ratio analysis. (6 Marks)
e) Explain any six reasons why individuals prefer current incomes rather than future income. (6 Marks)
Question Two (20 Marks)
a) Using suitable example, discuss any five classes of ratios. (10 Marks)
b) Describe any five objectives of an organization and how they relate with the normative goal. (10 Marks)
Question Three (20 Marks)
a) The following figures relate to an electrical appliance wholesaler. The stock at the beginning and at the end of the year are same: (10 Marks)
Kshs. Current assets Kshs.
Sales 1,500 Stock 125
Cost of sales 1,000 Debtors 250
Gross profit 500 Cash 225
Current liabilities
Trade creditors 200
Required:
(i) Calculate
(I) Current ratio
(II) Quick ratio
(III) Average debt collection period
(IV) Average creditor’s payment period
b) Outline the advantages of using financial ratios as an analysis tool. (10 Marks)
Question Four (20 Marks)
a) Discuss any five methods used in capital budgeting. Citing their advantages and disadvantages. (10 Marks)
b) Outline any five factors that affect the cost of capital of an entity. (10 Marks)
Question Five (20 Marks)
a) Describe the concept of the time value of money. (10 Marks)
b) Explain why you think investment decisions are important to an organization. (10 Marks)
