Economics and Management

All Questions Carry Equal Marks(25mks)

1.write short notes on the following terms as used in business finance management

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  1. Future value of money(05 mks)
  2. Present value of money(05mks)
  3. Time value for money (05mks)
  4. Discounting (05 mks)
  5. Economic order quantity (05mks)

2a)Distinguish between discounted cash flow techniques and non-discounted cash flow techniques(05mks)

b) An investor is planning to invest shs 450,000,000 in a housing project in Temangalo-kampala suburb. He expects shs. 135,000,000 annually for nine years. What is the project’s payback period?(10mks).

c) Discuss the four business finance decisions that you know (10 mks)

3. KAL Investments are planning to invest shs 400,000,000 for a period of five years, with a target to realize a return at a compounding rate of 10%, 15% depreciation charge, 10% tax, he has got two projects at his disposal and has requested you for your expertise as an investment analyst to help him which project KAL should undertake.

YearsProject AProject B
Inflows (shs 000,000)Inflows (000,000)
80120
12080
60140
140100
200120

You are required to determine the project’s

  1. Net present value for each project and advise which project to undertake(15mks).
  2. The accounting rate of return for project A. Assuming the Investors RRR is 15%.Advise KAL investments (10mks).

4a, Define the term ‘financialratio’ (05mks)

B,State and explain five major types of ratios that can be used in financial analysis (10mks)

C, Identify the users of financial ratios highlighting the reason(s) as towhy they use rations(10mks)

5a.What is a cash budget?(05mks)

b.The following information relates to fox limited company, accompany which started trading 5 years ago.

Month (1988)Sales (shs)Purchases (shs)
April150,000100,000
May160,000110,000
June160,00090,000
July170,00090,000
August200,00080,000
Sept200,000130,000
October180,000140,000
Novemeber180,00060,000
December200,000

The following Additional information is also available:

Cash in hand at the end of may 1998 will be shs. 200,000

60% of the sales proceeds are received current months,30%in the previous months and the balance received two months after sale.

Suppliers are paid one months after delivery of goods

Corporation tax for i1987 amounting to shs 20,000 will be paid on 30th October 1988

Contractors’ money amounting to 50,000 will be paid 0n 30th June.

The share hoders at their last annual general meeting increased their share capital by shs 70,000 and the fisrt call of 40,000 will be received in October 1988.

In October 1988, the company is due to receive shs.20,000 as a compensation for a civil suit

The mothly administration expenses amounting to 26,000 per month is anticipate dto be paid

The office equipment worth 12,000 will be paid for novemebr 1988

Required ;

Prepare a cash budget for the period beginning with 1st june to 31st dec. 1988(Don’t

Ignore the additional information (20mks)

6)Using information in question 3 above, determine;

  1. The Payback period for project two projects, and profitability index for project A(15mks).
  2. What factors should be considered while determining the capital structure of a company(10mks)

7a) Identify sources of business finance that one can rely on (10 mks)

  1. Assess the role of capital markets to the developing nation of your choice(15 mks)

End

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