THE MOMBASA POLYTECHNIC UNIVERSITY COLLEGE
Faculty of Business & Social Studies
DEPARTMENT OF BUSINESS STUDIES
DIPLOMA IN ACCOUNTANCY II
(DA II)
BB22028: BUSINESS FINANCE
STAGE EXAMS
SERIES: APRIL/MAY 2010.
TIME: 3 HOURS
INSTRUCTIONS TO CANDIDATES:
This paper consists of FIVE questions.
Answer ALL questions.
© 2010 Mombasa Polytechnic University College
Page 1
Q.1
Q.2
(a)
State and explain any FIVE types of bonds.
(b)
(i)
What are the advantages of a bank overdraft as a source of
finance.
(5 marks)
(ii)
Briefly give the characteristics of preference shares.
(i)
(ii)
(iii)
Q.4
Q.5
(5 marks)
Omuya Enterprises borrowed sh.1,000,000 from a financial institution to
be repaid in six equal monthly installments. Interest is charged
at 12% per annum compounded monthly.
Determine:
Q.3
(10 marks)
The amount of each monthly installment.
The outstanding principal at the end of the 2nd
month.
The loan repayment schedule.
(5 marks)
(5 marks)
(10 marks)
(i)
Outline FIVE similarities between ordinary and preference shares. (10 marks)
(ii)
Highlight FIVE differences between debentures and preference share
capital.
(10 marks)
(i)
What are the goals or objectives of the firm.
(10 marks)
(ii)
Explain the weaknesses of each of the goals in (i) above.
(10 marks)
You have been hired to assist in the analysis of the financial accounting
statements of the Simone Company Limited. The statements, and some
other key data, are shown below:
Income Statement for year ending 31 December.
2003
2002
£000
£000
Net Sales
5371
5576
Cost of goods sold
2340
2662
Gross profit
3031
2914
Selling and admin expenses
(2279)
(2213)
Depreciation expense
(157)
(156)
Other expenses
(70)
(57)
*EBIT
525
488
Interest expenses
(65)
(77)
Income before taxes
460
411
Tax
(169)
(168)
291
243
Dividends
(142)
(127)
Transfer to retained earnings
149
116
*EPS (75 million shares)
£3.88
£3.24
Divident per share
£1.89
£1.69
Market price per share
£62.00
£56.50
*EBIT- Earnings before interest and Tax
EPS – Earnings per share.
© 2010 Mombasa Polytechnic University College
Page 2
Balance Sheet at 31 December
2003
£m
£m
Fixed Assets:
Net of Depreciation
Current Assets:
Inventories
Accounts Receivable
Other Current Assets
Cash at Bank
Total Current Assets
Less: Current Liabilities:
Financed by:
75 million ordinary shares
At £3 per value
Retained Earnings
Total Equity
Long-term debt
2002
£m
1773
354
479
174
61
1068
1105
(37)
1736
225
764
Relevant Industry Averages are as follows:
2003
Current ratio
0.86
Quick ratio
0.55
Accounts Receivable turnover
11.0
Inventory turnover
6.6
Total debt to total assets
61.5
Times interest earned
7.3
Gross Profit margin
52.1
Net profit margin
4.6
Return on total assets
8.3
Divident payout ratio
51.6
Divident yield
3.5
Market to book value ratio
1.2
PIE ratio
14.7
£m
1784
435
575
150
95
1255
1087
168
1952
225
989
747
1736
615
840
1112
1952
2002
0.89
0.57
10.5
6.0
62.8
6.3
51.8
4.1
7.1
53.2
3.6
1.1
14.9
Required:
(a)
Calculate the following ratios for Simone for 2002 and 2003:
(Use 365 days trading days per annum is your calculations).
(i)
(ii)
(iii)
(iv)
(v)
(b)
Key
Key
Key
Key
Key
liquidity ratios
efficiency ratios
debt management ratios
profitably ratios
market ratios
Does Simone appear to be satisfactorily liquid?
© 2010 Mombasa Polytechnic University College
(15 marks)
(5 marks)
Page 3
(c)
What can you conclude about Simone’s:
(i)
(ii)
(iii)
(d)
Efficiency
Financial risk
Profitability
What do the market ratios you have calculated in (a)(v) above tell
you about investor’s opinion of Simone?
© 2010 Mombasa Polytechnic University College
(5 marks)
(5 marks)
Page 4