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    BFA 5176. Financial Management .Docx - 1

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    BFA 5176. Financial Management .Docx - 1

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    Grace Ndanu
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    Financial management

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    Financial management

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    2 views3 pages

    BFA 5176. Financial Management .Docx - 1

    Uploaded by

    Grace Ndanu
    Financial management

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    MERU UNIVERSITY OF SCIENCE AND TECHNOLOGY

    P.O. Box 972-60200 – Meru-Kenya


    Tel: 020-2069349, 061-2309217. 064-30320 Cell phone: +254 712524293, +254 789151411
    Fax: 064-30321
    Website: www.must.ac.ke Email: [email protected]

    University Examinations 2015/2016

    FIRST YEAR SECOND SEMESTER SPECIAL/SUPPLIMENTARY EXAMINATION


    FOR THE

    MASTER OF BUSIENSS ADMINISTRATION

    BFA 5176: FINANCIAL MANAGEMENT

    DATE: OCTOBER 2017 TIME: 3 HOURS

    INSTRUCTIONS: Answer question one and any other two questions.

    QUESTION ONE (30 MARKS)

    a) Discuss the four major objectives on a profit making entity? (8 marks)


    b) Makutano limited wishes to expand its output by purchasing a new machine worth
    170,000 and installation costs are estimate at 40,000/=. In the 4th year this machine will
    call for an overhaul to cost 80,000/=. It expected inflows are
    Shs
    Year 1 60,000
    Year 2 72,650
    Year 3 35,720
    Year 4 48,510
    Year 5 91,630
    Year 6 83,715
    This company can raise finance to purchase machine at 12% interest rate. Compute NPV
    and advise management accordingly (9 marks)

    Meru University of Science & Technology is ISO 9001:2015 Certified


    Foundation of Innovations Page 1
    QUESTION TWO (15 MARKS)

    a) Discuss the major objectives of a business organization (5 marks)


    b) Consider two investments A & B each having the following characteristics (10 marks)
    Investment Expected Return (%) Proportion
    A 20 2/3
    B 40 1/3
    Required:
    Compute the portfolio standard deviation if the correlation coefficient between the assets is
    a. 1
    b. 0
    c. -1

    QUESTION THREE (15 MARKS)

    a) Discuss five uses of financial derivatives by investors


    b) Security returns depend on only three risk factors-inflation, industrial production and the
    aggregate degree of risk aversion. The risk free rate is 8% the required rate of return on a
    portfolio with unit sensitivity to inflation and zero-sensitivity to other factors is 13.0%
    the required rate of return on a portfolio with unit sensitivity to industrial production and
    zero sensitivity to inflation and other factors is 10% and the required return on a portfolio
    with unit sensitivity to the degree of risk aversion and zero sensitivity to other factors is
    6%. Security I has betas of 0.9 with the inflation portfolio, 1.2 with the industrial
    production and -0.7 with risk bearing portfolio –(risk aversion)
    Assume also that required rate of return on the market is 15% and stock I has CAPM
    beta of 1.1
    Required
    Compute security is required rate of return using (10 marks)
    i. CAPM
    ii. APT

    QUESTION FOUR (15 MARKS)

    a) Discuss six factors that influence the cost of capital of an organization (6 marks)

    Meru University of Science & Technology is ISO 9001:2015 Certified


    Foundation of Innovations Page 2
    b) Assume that the following information has been obtained:
    P= Sh 20
    X= Sh 20
    T= 3 months (0.25 years)
    KRF= 12%
    δ 2 = 0.16
    Determine the value of the option (9 marks)

    QUESTION FIVE (15 MARKS)

    a) Discuss the major limitations of the capital asset pricing model (5 marks)
    b) Nchiru ltd has six projects available for investment as follows
    Project initial cost NPV @15%
    Sh.’M’ cost of capital
    1 60 21
    2 15 9
    3 20 9
    4 55 15
    5 30 20
    6 40 -2
    The firm has Sh.100M available for investment. Identify which projects should be
    undertaken . using P.1 and NPV ranking, comment on your answer (10 marks)

    Meru University of Science & Technology is ISO 9001:2015 Certified


    Foundation of Innovations Page 3

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