BF R. Kit as at 25 April 2006
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Transcript of BF R. Kit as at 25 April 2006
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Business Finance
SUBJECTNO. 9
Revision Kit
STRATHMORE
UNIVERSITY
DISTANCE LEARNING
CENTRE
P.O. Box 59857,00200, Nairobi,
KENYA.
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ii Acknowledgment
Acknowledgment
" rat"#ll acol"d" /"r!issio to #ot" ro! t" /ast "xa!iatio /a/"rs o t"
olloi bodi"s Kena Acco!ntant" and Sec#eta#ie" National Examination Boa#d$KASNEB%& C'a#te#ed (n"tit!te o) *anagement Acco!ntant" $C(*A%& C'a#te#ed
A""ociation o) Ce#ti)ied Acco!ntant" $ACCA%.
" also is to "x/r"ss o#r sic"r" ratit#d" ad d""/ a//r"ciatio to *#. +eo))#e *. Ngene or
i3i is ti!", "x/"rtis" ad 3al#abl" cotrib#tio, ic "r" a it"ral /art i t" iitial
d"3"lo/!"t o tis &"3isio :it. " olds t" olloi acad"!ic oo#rs, *BA, BCO*
$Finance% $at t'e Uni-e#"it o) Nai#oi%, C/A $K%, CFA $E.A.%. " is a s"ior l"ct#r"r at
trat!or" ;i3"rsit, cool o $cco#tac.
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Content" iii
CONTENTSAcknowledgment.......................................................................................................................................ii
/a#t (: (nt#od!ction................................................................................................................................. i-
$PP&O$'N$*'ON...................................................................................................................... ...3
?%%$B;..............................................................................................................................................................3ii
*OP'ocs..................................................................................................................................................19
$s"rs A >ocs....................................................................................................................................................156
/a#t (2: 0e-i"ion 5!e"tion" and An"we#"...........................................................................................689
#"stios.................................................................................................................................................................189
$s"rs...................................................................................................................................................................205
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i- (nt#od!ction
/a#t (: (nt#od!ction
*is r"3isio it addr"ss"s ""ds o st#d"ts /r"/ari to sit O
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A44#oac' toExamination" -
A//0OAC1 TO EA*(NAT(ONS
B"or" t" act#al "xa!iatio dat", it is 3"r i!/ortat tat t" st#d"t
a) $tt"!/ts /ast /a/"r #"stios :oi t" sllab#s cot"t is o" ti, b#t a//li it to !""t
"xa!iatio r"#ir"!"ts is #it" a di"r"t aair alto"t"r. $tt"!/ti /ast /a/"r #"stios
a!iliariD" t" st#d"t it t" t"ci#"s ado/t"d b t" "xa!i"r i t"sti t" sllab#s cot"t.
b) $s ar as /ossibl", or! disc#ssio ro#/s to sol3" /robl"!s to"t"r. ro#/s also
a3ail !or" acad"!ic r"so#rc"s to t" ro#/ !"!b"rs. >"!b"rs also r"aliD" s"ristic ""cts t"do !or" i a ro#/ ta t" co#ld a3" do" alo". ro#/s ar" "s/"ciall ""cti3" i r"3isi /ast
/a/"r #"stios.
$s o# sit t" "xa!iatios
1) s#r" o# #ll co!/r""d t" (NST0UCT(ONS. *" B#si"ss Ciac" /a/"r t/icall r"#ir"s
o" to as"r F(2E #"stios i T10EEo#rs.
2) $ss"ss t" "xa!iatio #"stios ta" t" irst 10E15 !i#t"s to o tro# t" #"stios, s"tcit" as"rs o t" #"stio /a/"r. "i t" as"r o# ar" li"l to /rod#c" /"r #"stio aaist
t" !ars. Not" t" #"stios o# ca do "xc"ll"tl, "ll, airl ad t" diic#lt o"s.
) Bas"d o o#r ass"ss!"t, s"l"ct t" #"stios tat ill "abl" o# to !axi!iD" o#r !ars s#bF"ct
to ti!", !"!or ad ior!atio costrais. O co#rs", o# start b s"l"cti tos" #"stios tat
o# ca tacl" b"st.
4) Pla o#r ti!" $llocat" "3"r #"stio at l"ast 0 !i#t"s, b#t ot !or" ta !i#t"s. Oc"
ti!" is #/, o to t" "xt #"stio so as to !axi!iD" o#r o3"rall scor". &"!"!b"r tat t" old"
r#l" o di!iisi r"t#rs i "coo!ics o/"rat"s 3"r ""cti3"l d#ri "xa!iatio ti!" o#r
rat" o "ari !ars is 3"r i as o# start a #"stio, b#t dro/s s"rio#sl as o# s/"d !or"
ti!" o t" #"stio.
5) ?o# ""d to "s/"ciall /a att"tio to #"stio r"#ir"!"ts s#c as
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(nt#od!ction
1) s#r" o#r adriti is l"ibl", ad o#r or is "at.
14) ' o# or"t a as"r, #"rr o#r !"tal databas". ?o# so#ld l"a3" so!" s/ac" adCONT(NUE as"ri ot"r #"stios. ?o#r !id is a !ar3"llo#s c"tral /roc"ssi #it tat ill
r"tri"3" t" r"#ir"d data b"or" lo
15) ' o# ar" totall sort o ti!", o#tli" t" as"r bri"l, d"/"di o o ac#t" o#r ti!"
sorta" is. B#t a3oid tis sit#atio as !#c as /ossibl".
16)
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Slla!" -ii
SY;;ABUS
C/A /A0T (( = SECT(ON 7
/A/E0 NO. 9 BUS(NESS F(NANCE
*o "#i/ t" cadidat" it a #d"rstadi o iacial !aa"!"t as/"cts o b#si"ss
oraiDatios, ad t" so#rc"s, costs ad #tiliDatio o #ds.
9.> S/EC(F(C OBJECT(2ES
$ cadidat" o /ass"s tis s#bF"ct so#ld b" abl" to
#d"rstad t" coc"/t o b#si"ss iac"
aalD" t" so#rc"s o #ds or b#si"ss
"3al#at" 3ario#s i3"st!"t d"cisio sc"arios or a oraiDatio
a//rais" t" /"ror!ac" o a b#si"ss #si iacial tools
#d"rstad t" c#rr"t d"3"lo/!"ts i b#si"ss iaci strat"i"s.
CONTENT
9.6 Nat!#e o) B!"ine"" Finance
E &"latiosi/ b"t"" b#si"ss iac" ad iacial !aa"!"t
E oals o t" ir!
E $"c t"or
E *ools o b#si"ss iac" *i!" 3al#" o !o", it"r"st rat"s, cas los, ris ad
r"t#r ("xcl#di /ortolio !aa"!"t)
9.? So!#ce" F!nd"
E xt"ral so#rc"s "#it ad loa ca/ital, ir" /#rcas", l"as" ir", trad" cr"dit
E 't"ral so#rc"s &"tai"d "aris, /ro3isios ad r"s"r3"s
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-iii (nt#od!ction
E
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To4ical +!ide to /a"t /a4e# 5!e"tion" ix
TO/(CA; +U(
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6 /a"t /a4e# 5!e"tion" and An"we#"
/a#t ((: /a"t /a4e# 5!e"tion" and An"we#"
5!e"tion" = /a"t /a4e#"
>>
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) at "coo!ic ad3ata"s ar" cr"at"d b t" "xist"c" o
(i) Pri!ar !ar"ts. ( !ars)(ii) "codar !ar"ts ( !ars)
(iii) Portolio !aa"!"t ir!s. (4 !ars)
(b) x/lai o t" ma#k"%
5UEST(ON TDO
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5!e"tion" = /a"t /a4e#" ?
(c) (i) at is a ma#k"%
5UEST(ON FOU0
(a) >o!boo
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7 /a"t /a4e# 5!e"tion" and An"we#"
(ii) o#ld o#r 3al#atio ca" i o# "x/"ct"d to old t" stoc or ol
"arsL x/lai. (5
!ars)
$Total: ?> ma#k"%
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5!e"tion" = /a"t /a4e#" @
SECT(ON ((
5UES(TON F(2E
*" iacial data i3" b"lo sos t" ca/ital str#ct#r" o $ab"bi
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/a"t /a4e# 5!e"tion" and An"we#"
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5!e"tion" = /a"t /a4e#"
JUNE ?>>6
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) tat" t" circ#!stac"s #d"r ic it o#ld b" ad3ata"o#s to l"d"rs ad toborro"rs ro! t" iss#" o
(i) "b"t#r"s it a loati rat" o it"r"st. (4 !ars)
(ii) M"roEco#/o bods. (4 !ars)
('or" taxatio)
(b) (i) Bri"l disc#ss t" disad3ata"s o t" costat rot di3id"d !od"l as a
3al#atio !od"l. (4
!ars)
(ii) *" di3id"d /"r sar" o >a3aDi %i!it"d as at 1 "c"!b"r 2000 as
.2.50. *" co!/aHs iacial aalst as /r"dict"d tat di3id"ds
o#ld ro at 20K or i3" "ars at"r ic rot o#ld all to a costat
rat" o 7K. *" aalst as also /roF"ct"d a r"#ir"d rat" o r"t#r o 10K
or t" "#it !ar"t. >a3aDiHs sar"s a3" a si!ilar ris to t" t/ical"#it !ar"t.
0e!i#ed:
*" itrisic 3al#" o sar"s o >a3aDi %td. $s at 1 "c"!b"r 2000.
(8 !ars)
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/a"t /a4e# 5!e"tion" and An"we#"
7. 60K o sal"s ar" o cr"dit.
8. *" ross !ari o sal"s is 0K ad is to b" !aitai"d i #t#r".
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5!e"tion" = /a"t /a4e#" 8
0e!i#ed:
(i) ;s" t" i3"tor (Ba#!ol) !od"l to d"t"r!i" t" "coo!ic ord"r #atit
ad t" ord"ri ad oldi costs at t"s" l"3"ls /"r a#!. (8 !ars)(ii) "t"r!i" i t" co!/a so#ld sitc to t" " cr"dit /olic. (4
!ars)
(b) *" $/ollo oda to *#rsda. $t t" clos" o b#si"ss o Crida t" ""Hs
bais ar" itdra ad, to"t"r it CridaHs coll"ctios, ar" r"!itt"d to t""ad oic". *" tais ar" "3"l s/r"ad dail ad ""l. *" b#d"t or t"
"xt "ar sos tat total coll"ctios ill a!o#t to .26 !illio. *" bais ar"
#s"d to r"d#c" a o3"rdrat os" it"r"st rat" is 19K.
*" coll"ctio !aa"r as s#"st"d tat ist"ad o bai coll"ctios, t" b"
r"!itt"d dail to t" "ad oic" b t" coll"ctors.
0e!i#ed:
"t"r!i" t" icr"as" i a#al it"r"st i t" coll"ctio !aa"rHs s#"stio as
ado/t"d. (8 !ars)
$Total: ?> ma#k"%
5UEST(ON T10EE
&aii ardar" *ools >>
?>>>
S'.>>>
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9 /a"t /a4e# 5!e"tion" and An"we#"
(a) Cor "ac o t" tr"" "ars, calc#lat" t" olloi ratios
$cid t"st ratio, $3"ra" coll"ctio /"riod, i3"tor t#ro3"r, *otal d"bt"#it, N"t
/roit !ari ad r"t#r o ass"ts. (12 !ars)
(b) Cro! t" ratios calc#lat"d abo3", co!!"t o t" li#idit, /roitabilit ad "ari
/ositios o t" co!/a. (8 !ars)
$Total: ?> ma#k"%
5UEST(ON FOU0
(a) x/lai #ll t" ""ct o t" #s" o d"bt ca/ital o t" "it"d a3"ra" cost o
ca/ital o a co!/a. (6
!ars)
(b) >ill"i#! '3"st!"ts %td. is"s to rais" #ds a!o#ti to .10 !illio to
iac" a /roF"ct i t" olloi !a"r
.6 !illio ro! d"btI ad
.4 !illio ro! loati " ordiar sar"s.
*" /r"s"t ca/ital str#ct#r" o t" co!/a is !ad" #/ as ollos
1. 600,000 #ll /aid ordiar sar"s o .10 "ac
2. &"tai"d "aris o .4 !illio
. 200,000, 10K /r""r"c" sar"s o .20 "ac.
4. 40,000 6K lo t"r! d"b"t#r"s o .150 "ac.
*" c#rr"t !ar"t 3al#" o t" co!/aHs ordiar sar"s is .60 /"r sar". *"
"x/"ct"d ordiar sar" di3id"ds i a "arHs ti!" is .2.40 /"r sar". *" a3"ra"
rot rat" i bot di3id"ds ad "aris as b"" 10K o3"r t" /ast t" "ars ad
tis rot rat" is "x/"ct"d to b" !aitai"d i t" or"s""abl" #t#r".
* H l t d b t tl d 100 *
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5!e"tion" = /a"t /a4e#"
6>
5UEST(ON F(2E
(a) *" $ (ar"ts $#torit) as /#t i /lac" s"3"ral tax ic"ti3"s to
"co#ra" i3"st!"ts i ca/ital !ar"ts.
ilit so!" o t" tax ic"ti3"s b t" ar"ts $#torit. (4 !ars)
(b) x/lai t" b""its tat ar" "Fo"d b i3"stors b"ca#s" o t" "xist"c" o
oraiD"d s"c#rit "xca"s. (8
!ars)
(c) Bri"l d"scrib" t" b""its o t"
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66 /a"t /a4e# 5!e"tion" and An"we#"
>6
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) ilit o#r ad3ata"s ad disad3ata"s to a co!/a o b"i list"d o a stoc"xca". (8 !ars)
(b) ' r"latio to t" stoc "xca"
(i) x/lai t" rol" o t" olloi !"!b"rs
Cloor bro"rs (2 !ars)
>ar"t !a"rs (2 !ars)
;d"rrit"rs (2 !ars)
(ii) x/lai t" !"ai o t" olloi t"r!s
B#ll ad b"ar !ar"ts (2 !ars)
BidEas s/r"ad (2 !ars)
ort s"lli (2 !ars)$Total: ?> ma#k"%
5UEST(ON TDO
(a) >#ltiE%i %td., a tradi co!/a, c#rr"tl as "liibl" cas oldis b#t"x/"cts to !a" a s"ri"s o cas /a!"ts totali .150 !illio o3"r t"
ortco!i "ar. *"s" /a!"ts ill b"co!" d#" at a st"ad rat". *o
alt"rati3" as a3" b"" s#"st"d o !""ti t"s" obliatios
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5!e"tion" = /a"t /a4e#"
6?
(a) (i) x/lai t" "a"ss"s o t" Ba#!ol !od"l i t" !aa"!"t o
cas. ( !ars)
(ii) $d3is" >#ltiE%i %td. as to t" b"tt"r alt"rati3" or !aai itscas. (7 !ars)
(b) %x "r3ic"s %td., a d"bt coll"ctio a"c, as "sti!at"d tat t" stadardd"3iatio o its dail "t cas lo is .22,750. *" co!/a /as .120
i trasactio cost "3"r ti!" it tras"rs #ds ito ad o#t o t" !o"
!ar"t. *" rat" o it"r"st i t" !o" !ar"t is 9.465K. *" co!/a
#s"s t" >ill"rEOrr >od"l to s"t its tar"t cas balac". *" !ii!#! cas
balac" as b"" s"t at .87,500.
0e!i#ed:
(i) *" co!/aHs tar"t cas balac". ( !ars)
(ii) *" lo"r ad #//"r cas li!it. (2 !ars)
(iii) %x "r3ic"s %td.Hs d"cisio r#l"s. (5 !ars)
$Total: ?> ma#k"%
5UEST(ON T10EE
>aaribi
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67 /a"t /a4e# 5!e"tion" and An"we#"
S'.
P#rcas" /ric" (scra/ 3al#" i 10 "ars .4,500,000)
Cr"it ad istallatio
87,000,000
1,000,000
100,000,000
4. *" "sti!at"d a#al o/"rati costs, i all t" c#rr"t o#t/#t is /roc"ss"d o t"
" !aci" ar"
S'. S'.
&a s#ar ca"
%abo#r (o" o/"rator)
-ariabl" "x/"s">ait"ac" ("xcl#di o3"ra#l
"x/"dit#r")
Cix"d "x/"s"s
"/r"ciatio
Cix"d actor o3"r"ad absorb"d
>ait"ac"
9,550,000
7,800,000
162,000,000
,900,000
2,275,000
17,50,000
4,500,000
5. *" co!/aHs cost o ca/ital is 10K.
6. Cor a /roF"ct to b" i!/l"!"t"d, it !#st /ass bot t" /roitabilit t"st, as idicat"db its it"ral rat" o r"t#r ad also satis a iacial 3iabilit t"st, i tat it !#st
/a bac or its"l iti a !axi!#! /"riod o i3" "ars.
0e!i#ed:
(a) (i) N"t /r"s"t 3al#"s o t" /ro/os"d r"/lac"!"t d"cisio #si disco#t rat"s
o 10K ad 20K. (8 !ars)
(ii) *" "sti!at"d it"ral rat" o r"t#r ('&&) o t" r"/lac"!"t d"cisio #si
t" 3al#"s d"t"r!i"d i (i) abo3". (4 !ars)
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5!e"tion" = /a"t /a4e#"
6@
>rs aDiri as a//roac"d o# or ad3ic" ad o# a3" at"r"d t" ior!atio i3"
b"lo r"ardi t" iacial coditio o $B< %td. ad t" iac" s"ctor as a ol".
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6 /a"t /a4e# 5!e"tion" and An"we#"
ABC ;td. Balance S'eet" a" at 76 Octoe#
6999
S'.>>>
?>>>
S'.>>>
?>>6
S'.>>>
aci"r
Ot"r ix"d ass"ts *otal ass"ts
$cco#ts ad ot"s /aabl"
$ccr#als
*otal c#rr"t liabiliti"s
%o t"r! d"bt
Ordiar sar" ca/ital
&"tai"d "aris
15,250
80,20
98,600194,170
25,20
,800
14,920268,120
4,220
15,700
49,920
60,850
115,000
42,50
268,120
14,400
87,800
158,800261,000
27,600
6,400
18,2004,200
7,760
4,000
107,760
60,858
115,000
59,582
4,200
8,000
14,400
254,00096,400
25,000
0,600
16,400468,400
15,848
67,000
202,848
81,720
115,000
68,82
468,400
ABC ;td. (ncome Statement" )o# t'e ea# ending 76 Octoe#
6999
S'.>>>
?>>>
S'.>>>
?>>6
S'.>>>
al"s (all o cr"dit)
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5!e"tion" = /a"t /a4e#"
6
(nd!"t# Financial 0atio"$?>>6%
#ic ratio
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6 /a"t /a4e# 5!e"tion" and An"we#"
' a co!/a, a a"c /robl"! !a "xist b"t"" !aa"!"t ad sar"old"rs o o"
ad ad t" d"bt old"rs (cr"ditors ad l"d"rs) o t" ot"r b"ca#s" !aa"!"t ad
sar"old"rs, o o ad cotrol t" co!/a a3" t" ic"ti3" to "t"r ito trasactios
tat !a tras"r "alt ro! d"bt old"rs to sar"old"rs. "c" t" ""d or ar""!"tsb d"bt old"rs i l"di cotracts.
0e!i#ed:
(a) tat" ad "x/lai a o#r actios or trasactios b !aa"!"t ad sar"old"rstat co#ld b" ar!#l to t" it"r"sts o d"bt old"rs (so#rc"s o colict). (8
!ars)
(b) rit" sort ot"s o a o#r r"stricti3" co3"ats tat d"bt old"rs !a #s" to/rot"ct t"ir "alt ro! !aa"!"t ad sar"old"r raids. (10
!ars)
$Total: 68 ma#k"%
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5!e"tion" = /a"t /a4e#"
68
*AY ?>>?
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) isc#ss t" drabacs o #si t" olloi a//roac"s i "sti!ati a s"c#ritHs
3al#"
(i) Boo 3al#"I ( !ars)
(ii) &"/lac"!"t 3al#"I ( !ars)
(iii) #bstit#tio 3al#"I ( !ars)
(i3) 'trisic 3al#". ( !ars)
(b) No!oo oldis %i!it"d as i3"st!"t it"r"sts i tr"" co!/ai"s. :iriaa-id"o %i!it"d (:-%), :iloris a#li"rs %i!it"d (:%) ad *#raa Cis"ri"s
%i!it"d (*C%). *" olloi iacial data r"lat" to t"s" co!/ai"s.
1. $s at 1 "c"!b"r 2001, t" iacial stat"!"ts o to o t" co!/ai"s
r"3"al"d t" olloi ior!atio
Com4an /#ice o) "'a#e
S'.
Ea#ning" 4e#
"'a#e
S'.
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69 /a"t /a4e# 5!e"tion" and An"we#"
(ii) ;si t" di3id"ds rot !od"l, d"t"r!i" t" !ar"t 3al#" o 1,000
sar"s "ld i *#raa Cis"ri"s %td. (*C%) as at 1 "c"!b"r 2001. (4
!ars)
$Total: ?? ma#k"%
5UEST(ON TDO
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5!e"tion" = /a"t /a4e#"
?>
Ordiar sar" ca/ital
&"tai"d "aris
12K loEt"r! d"bt*rad" cr"ditors
$ccr#"d "x/"s"s
84,000
5,200
20,000 6,000
24,000
199,200
Cor t" "ar "d"d 1 "c"!b"r 2001, sal"s a!o#t"d to .240,000,000. *" ir! /roF"cts
tat t" sal"s ill icr"as" b 15K i "ar 2002 ad 20K i "ar 200.
*" at"r tax /roit o sal"s as b"" 11K b#t t" !aa"!"t is /"ssi!istic abo#t #t#r"
o/"rati costs ad it"ds to #s" a at"rEtax /roit o sal"s rat" o 8K /"r a#!.
*" ir! it"ds to !aitai its di3id"d /a o#t ratio o 80K. $ss"ts ar" "x/"ct"d to 3ar
dir"ctl it sal"s il" trad" cr"ditors ad accr#"d "x/"s"s or! t" s/ota"o#s so#rc"s
o iaci. $ "xt"ral iaci ill b" ""ct"d tro# t" #s" o co!!"rcial /a/"r.
0e!i#ed:
(a) "t"r!i" t" a!o#t o "xt"ral iacial r"#ir"!"ts or t" "xt to "ars.
(7 !ars)
(b) (i) $ /roor!a balac" s""t as at 1 "c"!b"r 200. (10 !ars)
(ii) tat" t" #da!"tal ass#!/tio !ad" i o#r co!/#tatios i (a) ad b(i)
abo3". (1 !ars)
$Total: 68 ma#k"%
5UEST(ON FOU0
P. >#li as r"c"tl a//oit"d to t" /ost o i3"st!"t !aa"r o >asada %td. a #ot"dco!/a. *" co!/a as rais"d .8,000,000 tro# a rits iss#".
P. >#li as t" tas o "3al#ati to !#t#all "xcl#si3" /roF"cts it #"#al "coo!ic
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?6 /a"t /a4e# 5!e"tion" and An"we#"
(a) *" cost o "#it o t" ir!. ( !ars)
(b) *" "t /r"s"t 3al#" o "ac /roF"ct. (6 !ars)
(c) *" 't"ral &at" o r"t#r ('&&) o t" /roF"cts. (&"disco#t cas los at 24K
or /roF"ct = ad 25K or ProF"ct ?). (6 !ars)
(d) Bri"l co!!"t o o#r r"s#lts i (b) ad (c) abo3". (2 !ars)
(") 'd"ti ad "x/lai t" circ#!stac"s #d"r ic t" N"t Pr"s"t -al#" (NP-)
ad t" 't"ral &at" o &"t#r ('&&) !"tods co#ld ra !#t#all "xcl#si3"/roF"cts i a colicti a.
(5 !ars)
$Total: ?? ma#k"%
SECT(ON ((
5UEST(ON F(2E(a) at is !"at b t" t"r! ca/ital litL (5 !ars)
(b) a3" $rica "coo!i"s b"" caract"riD"d b !#c ca/ital lit i t" /astL
(8 !ars)
(c) at is t" i!/act o !assi3" ca/ital lit o t" 3al#" o t" do!"stic c#rr"cL
(5 !ars)
$Total: 68 ma#k"%
5UEST(ON S(
(a) isc#ss t" !ai actors ic a co!/a so#ld cosid"r " d"t"r!ii t"
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5!e"tion" = /a"t /a4e#"
??
>?
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
a) $ ir! !a ado/t a cos"r3ati3" /olic or a ar"ssi3" /olic i iaci its
ori ca/ital ""ds.
aFi >aD#ri
t"r/ris"s (>>) %td
E %"3"l o a#al sal"s (#ior! /"r !ot) E .600 !illio
E
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?7 /a"t /a4e# 5!e"tion" and An"we#"
*" a3"ra" coll"ctio /"riod ill b" r"d#c"d to 2 das.
Alte#nati-e B: cont#acting t'e "e#-ice" o) a )acto#:
*" actor o#ld car" a "" o 2K o total cr"dit sal"s ad ad3ac" >> %td.
90K o total cr"dit sal"s i3oic"d b t" "d o "ac !ot at a it"r"st rat" o1.5K /"r !ot.
*" ""cts o tis alt"rati3" ar" "x/"ct"d to b" as ollos
No ca" is "x/"ct"d i t" l"3"l o a#al sal"s, /ro/ortio o
cr"dit sal"s ad cotrib#tios !ari ratio. a3is o d"bt ad!iistratio "x/"s"s o .1,400,000 /"r !ot
ill r"s#lt
$ll bad d"bt loss"s ill b" "li!iat"d
*" a3"ra" coll"ctio /"riod ill dro/ to 20 das.
0e!i#ed:
i) 3al#at" t" a#al iacial b""its ad costs o "ac alt"rati3" ($ss#!"
60 Ada "ar) (8 !ars)
ii) $d3is" >> %td. !aa"!"t o t" alt"rati3" to i!/l"!"t. (2 !ars)
iii) x/lai bri"l ot"r actors tat so#ld b" cosid"r"d i r"aci t"
d"cisio i (ii) abo3". (4
!ars)
$Total: ?> ma#k"%
5UEST(ON TDO
(a) ' "3al#ati i3"st!"t d"cisios, cas los ar" cosid"r"d to b" !or" r"l"3at
ta /roitabilit associat"d it t" /roF"ct
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5!e"tion" = /a"t /a4e#"
?@
$ss#!" tat ca/ital alloac"s ar" to b" /ro3id"d or o a straitEli" basis ad
>a!ba %i!it"dHs cost o ca/ital is 12 /"r c"t /"r a#!.
0e!i#ed:
(i) *" iitial cas o#tlo or t" r"/lac"!"t d"cisio. ( !ars)
(ii) *" a#al icr"!"tal at"r tax o/"rati cas los. (4 !ars)(iii) *" NP- o t" r"/lac"!"t d"cisio ad ad3is" >a!ba %i!it"d o
"t"r to r"/lac" t" !aci"r.
(7 !ars)
(i3) *" !ii!#! at"r tax a#al o/"rati cas los tat ill !a" t"
r"/lac"!"t "asibl". ( !ars)
$Total: ?> ma#k"%
5UEST(ON T10EE
(a) x/lai t" t"r! a"c costs ad i3" a tr"" "xa!/l"s o s#c costs. (5
!ars)
(b) O 1 No3"!b"r 2002, >alaba %i!it"d as i t" /roc"ss o raisi #ds to
#d"rta" o#r i3"st!"t /roF"cts. *"s" /roF"cts r"#ir"d a total o .20 !illio.
i3" b"lo ar" d"tails i r"s/"ct o t" /roF"cts
/#oGect 0e!i#ed (nitial (n-e"tment
S'". million
(nte#nal 0ate o) 0et!#n
$(00%
$
B
ma#k"%
5UEST(ON FOU0
>adaa
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5!e"tion" = /a"t /a4e#"
?
&"s"r3"s
>"di#! ad loEt"r! d"bt
90
140
92
Cro! /ast "x/"ri"c", it as b"" disclos"d tat "ac additioal .1 o sal"s !ad" b t"co!/a r"#ir"s, o a3"ra", a total i3"st!"t i ix"d ass"ts, stocs ad d"btors o
.1.50. *" .1 additioal sal"s also r"s#lts i t" ""ratio o a#to!atic iaci o 40
c"ts as 3ario#s cr"ditors s/ota"o#sl aris" it t" icr"as" i sal"s.
*" "t /roit !ari at"r tax ad t" di3id"ds /ao#t ratio ic a//l or t" "ar "d"d
1 Octob"r 2002 ill also b" r"l"3at ito t" or"s""abl" #t#r".
0e!i#ed:
(a) *" a!o#t o "xt"ral iac" tat ill b" ""d"d d#ri t" "ar "di 1
Octob"r 200 i sal"s ar" "x/"ct"d to icr"as" b 15K i t" "ar.
(4 !ars)
(b) *" !axi!#! "x/"ct"d sal"s rot tat ca b" aci"3"d i t" "ar "di 1
Octob"r 200 i ol it"rall ""rat"d #ds ar" #s"d. (6 !ars)
(c) *" !axi!#! rot i sal"s tat ca b" aci"3"d i t" "ar "di 1 Octob"r
200 i t" co!/a is"s to !aitai its c#rr"t l"3"l o iacial "ari. (6
!ars)
(d) Bri"l co!!"t #/o t" "a"ss"s o t" !"tod o or"casti #s"d abo3".
(4 !ars)
$Total: ?> ma#k"%
SECT(ON ((
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? /a"t /a4e# 5!e"tion" and An"we#"
(a) x/lai t" !"ai o crossEbord"r listi. ( !ars)
(b) 'd"ti ad "x/lai six r"asos co!/ai"s i o#r co#tr !a s"" crossE
bord"r listi. (12 !ars)
(c) 'd"ti i3" barri"rs to crossEbord"r listi. (5 !ars)
$Total: ?>ma#k"%
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5!e"tion" = /a"t /a4e#"
?8
JUNE ?>>7
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) x/lai t" "it"d a3"ra" cost o ca/ital o a ir! tat #s"s r"lati3"l !or"d"bt ca/ital is ""rall lo"r ta tat o a ir! tat #s"s r"lati3"l l"ss d"bt ca/ital.
(6 !ars)
(b) *" total o t" "t ori ca/ital ad ix"d ass"ts o Caida %td as at 0 $/ril 200
as .100,000,000. *" co!/a is"s to rais" additioal #ds to iac" a
/roF"ct iti t" "xt o" "ar i t" olloi !a"r.
.0,000,000 ro! d"bt.20,000,000 ro! s"lli " ordiar sar"s.
*" olloi it"!s !a" #/ t" "#it o t" co!/a
.,000,000 #ll /aid #/ ordiar sar"s
$cc#!#lat"d r"tai"d "aris
1,000,000 10K /r""r"c" sar"s
200,000 6K lo t"r! d"b"t#r"s
0,000,000
20,000,000
20,000,000
0,000,000
*" c#rr"t !ar"t 3al#" o t" co!/aHs ordiar sar"s is .0. *" "x/"ct"d
di id d di b 0 $ il 2004 i t t 1 20 *
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?9 /a"t /a4e# 5!e"tion" and An"we#"
(iii) *" co!/aHs "xisti "it"d a3"ra" cost o ca/ital. (4
!ars)
(i3) *" co!/aHs !arial cost o ca/ital i it rais"d t" additioal.50,000,000 as it"d"d.
(4 !ars)
$Total: ?> ma#k"%
5UEST(ON TDO
(a) Bri"l "x/lai t" i!/ortac" o ca/ital b#d"ti i a b#si"ss oraiDatio. (4
!ars)
(b) $li!a %td., a !a#act#r"r o "dibl" oils, is cot"!/lati t" /#rcas" o a " oil
/roc"ssi !aci" to r"/lac" t" "xisti o". *" "xisti !aci" as ac#ir"d
to "ars ao at a cost o .4,000,000. t" #s"#l li" o tis !aci" as
oriiall "x/"ct"d to b" i3" "ars it o sal3a" 3al#", b#t at"r a criticalaalsis, t" iacial aalst as o "sti!at"d tat t" !aci" ill a3" a
"coo!ic li" o t" "ars it a sal3a" 3al#" o .500,000. *" " !aci" is
"sti!at"d to cost .8,000,000 ad .400,000 o#ld b" ic#rr"d i istalli t"
!aci". *" " !aci" is "sti!at"d to a3" a #s"#l li" o t" "ars. $ "x/"rti ass"t 3al#atio "sti!at"s tat t" "xisti !aci" ca b" sold at .2,500,000 i
t" o/" !ar"t. *" " !aci" is "x/"ct"d to l"ad to icr"as"d sal"s. *o
s#//ort t" icr"as"d sal"s, d"btors o#ld icr"as" b .20,000, stoc b
.140,000 ad cr"ditors b .00,000. *" "sti!at"d /roit b"or" d"/r"ciatio
ad tax o3"r t" "xt t" "ars or t" to !aci"s is as i3" b"lo.
Yea# New mac'ine
S'.
Old *ac'ine
S'.
12
4
50,000400,000420,000
410 000
280,00000,00020,000
40 000
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5!e"tion" = /a"t /a4e#"
7>
(a) O#tli" o#r li!itatios o t" #s" o ratios as a basis o iacial aalsis. (4
!ars)
(b) *" olloi ior!atio r"/r"s"ts t" iacial /ositio ad iacial r"s#lts o
$>*= %i!it"d or t" "ar "d"d 1 "c"!b"r 2002.
A*ETE ;imited
T#ading, 4#o)it and lo"" acco!nt )o# t'e ea# ended 76 >?
S'.H>>>H S'.H>>>H
al"s A
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76 /a"t /a4e# 5!e"tion" and An"we#"
&"3"#" r"s"r3"s
10K ba loa
81,500
40,000 QQQQQQ
281,500
Additional in)o#mation:
1. *" co!/aHs ordiar sar"s ar" s"lli at .20 i t" stoc !ar"t.
2. *" co!/a as a costat di3id"d /a o#t o 10K.
0e!i#ed:
"t"r!i" t" olloi iacial ratios
(i) $cid t"st ratio. (2 !ars)(ii) O/"rati ratio (2 !ars)
(iii) &"t#r o total ca/ital "!/lo"d (2
!ars)
(i3) Pric" "aris ratio. (2 !ars)
(3) 't"r"st co3"ra" ratio (2 !ars)
(3i) *otal ass"ts t#ro3"r (2 !ars)
(c) "t"r!i" t" ori ca/ital ccl" or t" co!/a. (4 !ars)
$Total: ?> ma#k"%
5UEST(ON FOU0
(a) ;F#Di %i!it"d is"s to rais" iac" to cat"r or t" /#rcas" o " ix"d ass"ts, as
its sal"s l"3"l as r"atl icr"as"d i t" r"c"t "ars, ad t" d"!ad or its
/rod#cts is "x/"ct"d to icr"as" or t" or"s""abl" #t#r". *" co!/a as
900,000 o#tstadi sar"s ic ar" c#rr"tl tradi i t" stoc "xca" at
.10 a sar". *" iac" !aa"r "sti!at"s tat t" ix"d ass"ts ill cost
.22,500,000 ad " as co3ic"d t" board o dir"ctors to rais" t" !o"tro# a rits iss#". *" board as s"t t" s#bscri/tio /ric" at .75 /"r sar".
0 i d
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5!e"tion" = /a"t /a4e#"
7?
$Total: ?> ma#k"%
SECT(ON ((
5UEST(ON F(2E
(a) Bri"l "x/lai t" di"r"c" b"t"" a bro"r ad a d"al"r i t" stoc !ar"t.
(6 !ars)
(b) at ar" t" ad3ata"s o a3i a d"al"r i a stoc !ar"tL (6 !ars)
(c) (i) at ar" t" ad3ata"s o a c"tral d"/ositor sst"! ( ma#k"%
5UEST(ON S(
(a) O#tli" t" actors ic cotrib#t"d to t" /o/#larit o co!!"rcial /a/"rs o3"r
ba o3"rdrats a!o lar" cor/oratios i t" 1990s. (4!ars)
(b) ma#k"%
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77 /a"t /a4e# 5!e"tion" and An"we#"
>7
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) Bri"l "x/lai o t" o *"or 3i"s t" !o3"!"t o t" !ar"t /ric"s osar"s trad"d o a stoc "xca". (5 !ars)
(b) 'd"ti ad bri"l "x/lai t" actors tat !#st b" ta" ito acco#t i t" d"si
ad costr#ctio o a !ar"t id"x or sar"s. (5!ars)
(c) Jos"/ :i!"# is tri to d"t"r!i" t" 3al#" o Bidii %td.Hs ordiar sar"s. *"
"aris rot rat" o3"r is /la"d sixE"ar oldi /"riod is "sti!at"d to b" 10K,
ad t" di3id"d /ao#t ratio is 60K. *" "di /ric" "aris (P) ratio is
"x/"ct"d to b" 20 ad t" c#rr"t "aris /"r sar" ar" .4. *" r"#ir"d rat" o
r"t#r or tis sar" is 15K.
0e!i#ed:
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5!e"tion" = /a"t /a4e#"
7@
0e!i#ed:
(i) "t"r!i" t" "t /r"s"t 3al#" (NP-) o "ac /roF"ct. (6 !ars)
(ii) a!a %td. o ic /roF"ct to i3"st i, ad F#sti o#r coic".
(4 !ars)
$Total: ?> ma#k"%
5UEST(ON T10EE
(a) isti#is b"t"" iacial ris ad o/"rati ris. (4 !ars)
(b) al" %td. as b"" i o/"ratio or t" last "it "ars. *" co!/a is all "#it
iac"d it 6 !illio ordiar sar"s it a /ar 3al#" o .5 "ac. *" c#rr"t
!ar"t /ric" /"r sar" is .8.40, ic is i li" it t" /ric""aris (P) ratio
i t" id#str o 6.00. *" co!/a as b"" cosist"t i /ai a di3id"d o
.1.25 /"r sar" d#ri t" last i3" "ars o its o/"ratios, ad idicatios ar" tatt" c#rr"t l"3"l o o/"rati ico!" ca b" !aitai"d i t" or"s""abl" #t#r".
*ax as b"" at a rat" o 0K.
*" !aa"!"t o al" %td. is cot"!/lati t" i!/l"!"tatio o a "
/roF"ct ic r"#ir"s .10 !illio. ic" o it"ral so#rc"s o #ds ar"
a3ailabl", !aa"!"t is to d"cid" o to alt"rati3" so#rc"s o iac", a!"l
Alte#nati-e A*o rais" t" .10 !illio tro# a rits iss#". >aa"!"t is o t" o/iio tat
a /ric" o .6.25 /"r sar" o#ld b" air.
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7 /a"t /a4e# 5!e"tion" and An"we#"
(iii) >>
*otal ix"d ass"ts (N"t boo 3al#")
O/"rati costs ("xcl#di d"bt it"r"st)
i3id"ds d"clar"d ad /aid
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5!e"tion" = /a"t /a4e#"
7
0e!i#ed:
ma#k"%
5UES(TON S(
(a) i"r"tiat" b"t"" t" olloi /airs o t"r!s
(i) >ar"t 3al#" ad itrisic 3al#" o a sar". (4 !ars)
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7 /a"t /a4e# 5!e"tion" and An"we#"
JUNE ?>>@
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) x/lai t" !"ai o t" t"r! cost o ca/ital ad "x/lai a co!/a so#ldcalc#lat" its cost o ca/ital it car". (4 !ars)
(b) 'd"ti ad bri"l "x/lai tr"" coditios ic a3" to b" satisi"d b"or" t" #s"
o t" "it"d a3"ra" cost o ca/ital ($
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5!e"tion" = /a"t /a4e#"
78
(a) ' t" cot"xt o ca/ital b#d"ti, "x/lai t" di"r"c" b"t"" ard ratioi
ad sot ratioi. (6
!ars)
(b) *" iac" !aa"r o Bidii 'd#stri"s %td., ic !a#act#r"s "dibl" oils, as
id"tii"d t" olloi tr"" /roF"cts or /ot"tial i3"st!"t
/#oGect (
*" /roF"ct ill r"#ir" a iitial i3"st!"t o.18 !illio ad a #rt"r
i3"st!"t o .25 !illio at t" "d o to "ars.
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79 /a"t /a4e# 5!e"tion" and An"we#"
(ii) ic o t" tr"" /roF"cts so#ld Bidii 'd#stri"s %td. acc"/tL (2 !ars)
$Total: ?> ma#k"%
5UEST(ON T10EE
(a) at is !"at b t" t"r! !atci a//roac i iaci ix"d ad c#rr"t
ass"tsL
(4 !ars)
(b) Bri"l "x/lai o t" >ill"rEOrr cas !aa"!"t !od"l o/"rat"s. (4 !ars)
(c) aa!# %td., ic o/"rat"s i t" r"tail s"ctor s"lli a sil" /rod#ct, is
cosid"ri a ca" o cr"dit /olic ic ill r"s#lt i a icr"as" i t" a3"ra"
coll"ctio /"riod o d"bts ro! o" to to !ots. *" r"laxatio o t" cr"dit/olic is "x/"ct"d to /rod#c" a icr"as" i sal"s i "ac "ar, a!o#ti to 25K o
t" c#rr"t sal"s 3ol#!". *" olloi ior!atio is a3ailabl".
1. "lli /ric" /"r #it o /rod#ct A .1,0002. -ariabl" cost /"r #it o /rod#ct A .850
.
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5!e"tion" = /a"t /a4e#"
@>
%oEt"r! d"bt
C!##ent liailitie"
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@6 /a"t /a4e# 5!e"tion" and An"we#"
5UEST(ON S(
(a) at ar" t" d"t"r!iats o t" /ric" o a bodL (4!ars)
(b) 'd"ti six as i ic a co!/a co#ld !a" /r""r"c" sar"s !or" attracti3"
to a /ot"tial i3"stor. (6 !ars)
(c) (i) %ist ad bri"l disc#ss tr"" /ossibl" r"asos co!/ai"s i t" sa!"
t/" o b#si"ss !a a3" di"r"t /ric""aris (P) ratios. (6
!ars)
(ii) ma#k"%
>@
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) isti#is b"t"" a cr"dit /olic ad a ori ca/ital /olic. (4 !ars)
(b) %ist o#r actors tat so#ld b" cosid"r"d i "stablisi a ""cti3" cr"dit /olic.
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5!e"tion" = /a"t /a4e#"
@?
5UEST(ON TDO
(a) "3"ral !"tods "xist or "3al#ati i3"st!"t /roF"cts #d"r ca/ital b#d"ti.
'd"ti ad "x/lai tr"" "at#r"s o a id"al i3"st!"t a//raisal !"tod. (6
!ars)
(b) >a/ato %i!it"d is a co!/a i3ol3"d i t" /roc"ssi o cooi oil. *"
!aa"!"t is cosid"ri "t"r to r"/lac" a "xisti cool"r it a " o".
*" old cool"r is #ll d"/r"ciat"d ad as o sal3a" 3al#". ' ot r"/lac"d, t"co!/a ill coti#" to ic#r .1.8 !illio as a#al o/"rati "x/"s"s ad a
additioal .500,000 i r"/air costs /"r a#! o3"r t" "xt it"" "ars.
*" " cool"r costs .,150,000. 'ts a#al o/"rati "x/"s"s ad r"/air costs
ar" "sti!at"d at .1. !illio ad .50,000 r"s/"cti3"l o3"r its "sti!at"d
"coo!ic li" o it"" "ars. 't is "x/"ct"d to b" ortl"ss at"r t" "x/ir o tis
/"riod.
*" cost o ca/ital is 10K ad t" co!/a d"/r"ciat"s its ass"ts #si t" straitEli" !"tod.
$ss#!" a 0K cor/oratio tax rat".
0e!i#ed:
(i)
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@7 /a"t /a4e# 5!e"tion" and An"we#"
*" co!/a /aid a di3id"d o .4.5 i t" /r"3io#s iacial "ar. *is di3id"d,
to"t"r it t" co!/aHs "aris is "x/"ct"d to ro b 5K a#all at"r
i3"sti i t" "x/asio /roF"ct.
0e!i#ed:
(i)
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5!e"tion" = /a"t /a4e#"
@@
(ncome "tatement )o# t'e ea# ended 7> J!ne ?>>@
S'.al"s (all o cr"dit)
O/"rati /roit
%"ss d"b"t#r" it"r"st
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@ /a"t /a4e# 5!e"tion" and An"we#"
0e!i#ed:
(a) ma#k"%
SECT(ON ((
5UEST(ON F(2E
(a) $lto# /roit !axi!iDatio as lo b"" cosid"r"d as t" !ai oal o a ir!,sar"old"r "alt !axi!iDatio is aii acc"/tac" a!ost !ost co!/ai"s as
t" " oal o a ir!.
0e!i#ed:
(i) isti#is b"t"" t" oals o /roit !axi!iDatio ad sar"old"r "alt
!axi!iDatio. (4 !ars)
(ii) x/lai tr"" li!itatios o t" oal o /roit !axi!iDatio. (6 !ars)
(b) x/lai tr"" " rol"s o a ca/ital !ar"ts r"#lator i o#r co#tr. (6 !ars)
(c) ilit t" i!/ortac" o t" olloi t"r!s i i3"st!"t a//raisal
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5!e"tion" = /a"t /a4e#"
@
-
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@ /a"t /a4e# 5!e"tion" and An"we#"
KENYA ACCOUNTANTS AN< SEC0ETA0(ES NAT(ONA; EA*(NAT(ONS
BOA0> Time Allowed: 7 'o!#"
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) isti#is b"t"" t" olloi t"r!s
(i)
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5!e"tion" = /a"t /a4e#"
@8
*" co!/aHs "#it sar"s ar" c#rr"tl s"lli at s. 100 /"r sar". O3"r t"
/ast i3" "ars, t" co!/aHs di3id"d /aEo#ts ic a3" b"" a//roxi!at"l60K o t" "aris /"r sar" "r" as ollos
Yea# ended 7> Se4teme#
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@9 /a"t /a4e# 5!e"tion" and An"we#"
(a) isti#is b"t"" t" olloi t"r!s as #s"d i t" !aa"!"t o ori
ca/ital
(i) O3"rtradi ad o3"rca/italiDatio. (4 !ars)
(ii) Cactori ad /l"di o d"btors (4 !ars)
(b) *" olloi ior!atio r"lat"s to >a#ta ai %i!it"dS'". I>>>
P#rcas" o ra !at"rials 6,700
;sa" o ra !at"rials 6,500
al" o iis"d oods (all o cr"dit) 25,000
ma#k"%
5UEST(ON FOU0
(a) >ooDo %i!it"d as a//roac"d o# or ad3ic" o a "#i/!"t to b" /#rcas"d
or #s" i a i3" "ar /roF"ct.
*" i3"st!"t ill i3ol3" a iitial ca/ital o#tla o s. 1.4 !illio ad t""x/"ct"d cas los ar" i3" b"lo
Yea# Ca"' in)low" Ca"' o!t)low"
S'". S'".
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5!e"tion" = /a"t /a4e#"
>
istal!"ts o s. 1,125,000 /aabl" at t" "ar "d. *" co!/aHs r"#ir"d rat"
o r"t#r is 1K ad t" co!/a is i t" 0K tax brac"t.
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6 /a"t /a4e# 5!e"tion" and An"we#"
0e!i#ed:
(i) *" "t /r"s"t 3al#" (NP-) o t" !aci" i #ll iac"d b "#it to
ac#ir" t" !aci". $d3is" t" !aa"!"t o "t"r to iac" it b"#it or loa. (4 !ars)
(ii) *" "t /r"s"t 3al#" (NP-) o Rt" !aci" it /art d"bt iaci.
o#ld o#r ad3ic" to t" !aa"!"t i (b) (i) abo3" ca"L (8
!ars)
$Total: ?> ma#k"%
SECT(ON ((
5UEST(ON F(2E
(a) isti#is b"t"" /ri!ar ad s"codar s"c#riti"s !ar"t. (4 !ars)
(b) "s/it" t" lar" i3"st!"t i t" stoc "xca" ad t" 3ario#s o3"r!"t
ic"ti3"s, ol a " co!/ai"s ar" list"d at t" stoc "xca" o t" tr"" ast$rica co#tri"s.
*is as t" o/"i r"!ar b t" #"st s/"a"r i a s"!iar os" t"!" as
"3"lo/i o#r ca/ital !ar"t.
0e!i#ed:
(i) *" ad3ata"s o b"i list"d at t" stoc "xca". (8 !ars)
(ii) ilit o#r actors tat !a id"r co!/ai"s ro! b"i list"d at t"
stoc "xca". (8 !ars)
$Total: ?> ma#k"%
5UEST(ON S(
(a) rit" sort ot"s o t" olloi
(i) st"!atic ad #sst"!atic ris. (4
!ars)
(ii)
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5!e"tion" = /a"t /a4e#"
?
KENYA ACCOUNTANTS AN< SEC0ETA0(ES AN< NAT(ONA; EA*(NAT(ONS
BOA0 Time Allowed: 7
'o!#".
An"we# A;; !e"tion" in SECT(ON ( and ONE !e"tion in SECT(ON ((. *a#k"
allocated to eac' !e"tion a#e "'own at t'e end o) t'e !e"tion. S'ow A;; o!#
wo#king".
SECT(ON (
5UEST(ON ONE
(a) "i" t" olloi iac" t"r!s
(i) *"r! str#ct#r" o it"r"st rat"s. (2 !ars)
(ii) cri/ di3id"ds. (2 !ars)
(iii) ar" s/lits (2 !ars)
(b) Mat"x %td. ad t" olloi ca/ital str#ct#r" as at 1 >arc 2005S'".
Ordiar sar" ca/ital (200,000 sar"s) 4,000,00010K Pr""r"c" sar" ca/ital 1,000,000
14K "b"t#r" ca/ital ,000,000
8 000 000
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7 /a"t /a4e# 5!e"tion" and An"we#"
(4 !ars)
(c) Jaso %td. /aid a ordiar di3id"d o s. .60 /"r sar" or t" "ar "d"d 1
>arc 2005. *" !aa"!"t o t" co!/a /roF"cts tat t" "aris o t"co!/a ill icr"as" i t" co!i "ars as ollos
Yea# ending 76
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5!e"tion" = /a"t /a4e#"
@
(i) ma#k"%
5UEST(ON T10EE
(a) Bri"l "x/lai t" o/"ratios o t" c"tral d"/ositor sst"! (arc 2009.
$ll "aris o#ld coti#" to b" /aid o#t as di3id"ds to sar"old"rs. *" cost o
ca/ital is 20K.
0e!i#ed:
(i) arc 2005. (2 !ars)
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/a"t /a4e# 5!e"tion" and An"we#"
*" /roit /"r #it o t" co!/aHs /rod#ct is so b"lo
S'". S'".
"lli /ric" 25%"ss !at"rials 10
a"s 9.5
-ariabl" costs
Cix"d costs 0.5 2
Proit 2
*" co!/a as t" o//ort#it to icr"as" its sal"s b s. 10,000,000 /"r a#!,
s/lit b"t"" cat"ori"s < ad o t" d"btors i t" /ro/ortio 2 r"s/"cti3"l.*" co!/a borros at a it"r"st rat" o 11.5K /"r a#! (ass#!" a "ar as 65das).
0e!i#ed:
(i)
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An"we#" /a"t 4a4e#"
An"we#" = /a"t /a4e#"
SU++ESTE< SO;UT(ONS TO T1E /AST /A/E0 5UEST(ONS
>>
5UEST(ON ONE
(a) (i) /0(*A0Y *A0KET
&aisi
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/a"t /a4e# 5!e"tion" and An"we#"
5UEST(ON TDO
Alte#nati-e
(a) (i) $3"ra" i"ld T 9.10 + 9 T 9.05
2
Cor !ots t" i"ld T 9.05 T .02
Par 3al#" T 1QQQQQ T 97.07K
1 + 0.002
(ii) $3"ra" i"ld or J#" 18.55 T 9.275K
2
9.275K or 4 !ots T 2.1875 /"r !ot
Par 3al#" T 1QQQQQ T 97.7K
1 + 0.02875
&at" o r"t#r T 97.7 E 97.07
97.07
T >.8
(b) (i) $ id"x i ""ral t"r!s is a !"as#r" o r"lati3" ca" ro! o" /oit i /ric" to
aot"r. toc idic"s !"as#r" ca"s i /ric" or 3al#".
(ii) rabacs o NE 20 co!/ai"s ot tr#" r"/r"s"tati3"s
*i t t ll i t ti t t d t b
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An"we#" /a"t 4a4e#" 8
5UEST(ON T10EE
(a) iic#lti"s ac"d i ca/ital b#d"ti
E ;c"rtait o 3ariabl"s ". a#al cas los, disco#ti rat"s, ca"s i
t"colo, ilatio rat", ca"s i tax rat"s "tc.E %ac o ad"#at" ca/ital to #d"rta" all 3iabl" /roits (ca/ital ratioi)
E %ac o ad"#at" ior!atio o t" a3ailabl" i3"st!"t o//ort#iti"s ".
i cas" o !#t#all "xcl#si3" /roits NP- ad '&& ill a3" colict i
bai o /roits #d"r so!" circ#!stac"s.
E 'd"tiicatio o all t" #atiiabl" ad o #atiiabl" costs ad b""its
associatio it a /roF"ct.
(b) *" old rid"r still as 5 !or" "ars. "t"r!i" t" NB- (toda) at"r t" la/s" o
"ars #si 15K d"/r"ciatio rat".
.H000H
Cirst "ars ao
%"ss "/r"ciatio 15K
?"ar 1
?"ar 2
?"ar NB- toda "d o "ar
,500
5252,975
446
2,529
792,150
*" d"/r"ciatio or t" irst "ars is a s# or istorical 3ariabl", irr"l"3at i
r"/lac"!"t d"cisio.
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9 /a"t /a4e# 5!e"tion" and An"we#"
(ii)
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An"we#" /a"t 4a4e#" >
.H000H
?"ar B*(1E*) * O/"rati
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6 /a"t /a4e# 5!e"tion" and An"we#"
?"ar rot
i3id"d
P+
P+P T ? x >P
i3" >P T .45 ad ? T 5K (0.05)
P T .45 x 0.05
T .2.25
(b) ic" t" co!/a is raisi " : d"t"r!i" t" a!o#t to rais" ro! "ac so#rc".*" a!o#t ro! d"b"t#r"s ad &"tai"d aris ar" s/"cii"d.
*" a!o#t to rais" ro! ordiar sar"s ca b" d"ri3"d ro! t" "xisti ca/ital
t t
A / t ?
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An"we#" /a"t 4a4e#" ?
N#!b"r o sar"s to b" iss#"d to rais" .10.464> ro! iss#" o ordiar sar"s at
9.60 >P
No. o sar"s TB9.6010.464 T 0.264242> sar"s
T 264,242 sar"s
$c% *a#ginal co"t o) ca4ital
Cor "ac o t" 4 so#rc"s o ca/ital co!/#t" t" /"rc"ta" >
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7 /a"t /a4e# 5!e"tion" and An"we#"
(iii) *a#ginal Co"t o) O#dina# S'a#e Ca4ital $Ke%
100
oP
od
:" xFc
=
do T .2.25
PoCc T .9.60
1009.60
2.25:" x= T 5.68K
(i3) *a#ginal Co"t o) /#e)e#ence S'a#e Ca4ital $K4%
100
oP
d
/: x
Fcp=
d/ T Pr""r"c" P T 10K co#/o rat" x 20 /ar 3al#" T .2
Po T arial
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An"we#" /a"t 4a4e#" @
(ii) Pro3isio or d"/r"ciatio is a a//ro/riatio ro! t" co!/aHs /roits.
*is a//ro/riatio is tras"rr"d to a sii #d ic b"co!"s a so#rc"
o ca/ital or r"/laci a "xisti ass"t. 't is a it"ral so#rc" o iac".
5UEST(ON S(
(a
)
$ a"t is a idi3id#al or /art acti o b"al. ' t" cot"xt o /#blic li!it"d a"c
r"latiosi/ !a ta" to !ai or!s.
(i) $"c r"latiosi/ b"t"" ar"old"rs ad >aa"!"t.
*" sar"old"rs ar" t" o"rs o t" co!/a tro# "#it ca/ital cotrib#tio.o"3"r, t" !a ot b" i3ol3"d i !aa"!"t. *" sar"old"rs !a ot a3"
t" "c"ssar sills or ti!" r"#ir"d. $s a r"s#lt, t" a//oit ot"r /arti"s to r# t"
co!/a o t"ir b"al (!aa"rs). *" sar"old"rs ar" t" /rici/l"s ad t"
!aa"!"t costit#t" t" a"ts.
(ii) $"c r"latiosi/ b"t"" t" sar"old"rs ad cr"ditors.
*" cr"ditors ar" t" cotrib#tors o d"bt ca/ital *" ar" ot allo"d to b" i3ol3"d i
!aa"!"t o t" co!/a dir"ctl. $t"r /ro3isio o #ds t" sar"old"rs ar"
"x/"ct"d to !aa" t" #ds alo it t" !aa"!"t o b"al o t" cr"ditors.
*" cr"ditors costit#t" t" /rici/l"s ad t" sar"old"rs t" a"ts.
*" !aa"!"t !a b" i3ol3"d i #ds ad irr"#lariti"s. *is ill r"d#c" t" "t
"aris accr#i to t" sar"old"rs.
(iii) Ot"r a"c r"latiosi/s is b"t"" sar"old"rs ad o3"r!"t a#ditors,
"!/lo""s ad cos#!"rs.
(b
)
E ;s" o /"ror!ac" bas"d r"ardco!/"satio
* t i i
/a"t /a4e# 5!e"tion" and An"we#"
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/a"t /a4e# 5!e"tion" and An"we#"
JUNE ?>>6
5UEST(ON ONE
(a)
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An"we#" /a"t 4a4e#"
T0.07E0.10
)16.22(1.07T 221.85 0.621 17.77
T 'trisic 3al#" T *otal /r"s"t 3al#" T 154.11
5UEST(ON TDO
(a) *" Ba#!ol >od"l o cas !aa"!"t is t" O !od"l or stoc !aa"!"t.
$ccordi to O !od"l, t" o/ti!al stoc to old (O) T
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/a"t /a4e# 5!e"tion" and An"we#"
ic" a P !ari o 0K is i3" t" /roitabilit associat"d it t" ca" i
cr"dit /olic ill b" aals"d ro! icr"a!"tal P.
' K P !ari Tross Proit x 100 t" ross /roitT K P !ari al"s al"s
*" cost o iaci d"btors T 18K rat" o
xisti
/olic
N" /olic 'cr"a!"tal
P T 0K x 540 162! 0K x 648 194.4 2.40 (b""it)
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An"we#" /a"t 4a4e#" 8
>odas coll"ctios
*#"sdas coll"ctios
"d"sdaHs coll"ctios
*#rsdaHs coll"ctios
E
E
E
E
0.1! x 0.0521K x 4 das
T
0.1! x 0.0521K x das
T0.1! x 0.0521K x 2 das
T
0.1! x 0.0521K x 1 da T
208.4
156.
104.2
52.1
*otal it"r"st car"s or"o" /"r "" 521
i3" 52 ""s /.a. a#al icr"a!"tal it"r"st car"s T 521 x 52 T 27,092.
5UEST(ON T10EE
$a% 0atio Fo#m!la# 6998 6999 ?>>>
$cid t"st
#ic ratio
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9 /a"t /a4e# 5!e"tion" and An"we#"
(ii) tat" t" obs"r3atio !ad" ". ratios ar" d"clii or icr"asi i cas" o
tr"d or ti!" s"ri"s aalsis.
(iii) tat" t" r"asos or t" obs"r3atio.
(i3) tat" t" i!/licatios o t" obs"r3atio.
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An"we#" /a"t 4a4e#" >
1998 20+ 200 + 100 + 00 x 100
1,40
T 58.04K
1999 00 + 210 + 100 + 00 x 100 1,560
T 58.K
2000 80 + 225 + 140 + 00 x 100
1,695
T 61.65K
5UEST(ON FOU0
(a) $t iitial sta"s o d"bt ca/ital t" $
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6 /a"t /a4e# 5!e"tion" and An"we#"
:d T 100x125
6.8
2
1100)(150
100
1100)E(1500.)E9(1
=
+
+T
5.441K
ro! sar"s
ic" t"r" ar" o loatatio costs i3ol3"d t"
>arial cost o d"bt T 5.4K
>arial cost o ordiar sar" ca/ital T 14K
An"we#" /a"t 4a4e#" ?
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4 4
E *" ir!s ar" abl" to iss#" " sar"s ad rais" ca/ital "asil
E *" "xca" is a 3"icl" o !obiliDi sa3is i t" "coo!
E ic" i3"stors ca b# " sar"s, tis "abl" t"! to di3"rsi t"ir
i3"st!"ts ad r"d#c" risE 't is a !"as tro# ic or"i dir"ct i3"st!"t (CO') ca lo ito t"
"coo!
E '3"stors ar" abl" to o t" /ric" o t"ir s"c#riti"s as d"t"r!i"d b
d"!ad ad s#//l orc"s i t" stoc "xca".E ic" i3"stors caot b# or s"ll sar"s t"!s"l3"s, t" it"ract it
stocbro"rs ad "t i3"st!"t ad3ic"
(c) *" b""its o c"tral d"/ositor sst"! (
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4 5
>6
5UEST(ON ONE(a) Ad-antage" o) eing li"ted
N" #ds !a b" "asil obtai"d ro! t" stoc "xca"
as /rici o sar"s
$ b"tt"r cr"dit stadi obtai"d
as sar" /"r tras"r (o"rsi/)
B#i ot"r co!/ai"s is "asi"r
id" o"rsi/ o t" ir!
&"d#ctio i /"rc"i3"d ris b sar"old"rs
r"at"r /ro!i"c" ad stat#s i3" to #ot"d co!/ai"s !a cr"at" oodillor t" co!/a.
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4 4
co!/aHs sar"s d#ri a /ri!ar iss#".
" "s#r"s tat t" co!/a "ts t" tar"t"d #ds so!"ti!"s a3i tota" #/ t" sortall i d"!ad.
(b) (i) B#ll ad b"ar !ar"ts
$ b#ll !ar"t is a !ar"t caract"riD"d b risi /ric"s, "co#rai /"o/l" tob# o i t" o/" o !ai a /roit " t" s"ll lat"r at"r /ric"s a3"
cli!b"d #/.
$ b"ar !ar"t is caract"riD"d b alli /ric"s "co#rai b"ars to s"ll oi ord"r to a3oid #t#r" loss"s " /ric"s o#ld a3" all".
(ii) Bid as s/r"ad
's t" di"r"c" b"t"" t" o"r /ric" ad t" b#i /ric" o a sar".
(iii
)
ort s"lli
E 's t" act o s"lli a sar" ic o" do"s ot alr"ad /oss"ss.
E *" d"al"r co#ld borro t" sar"s, s"ll t"! " /ric"s ar" i ad
i atici/atio o d"cli" i /ric"s, t" sar"s ill b" bo#t bac atlo"r /ric"s ad r"#d"d to t" l"d"r
5UEST(ON TDO
(a) (i) "a"ss"s o Ba#!ol >od"l i !aa"!"t o cas.
Ba#!ol >od"l is t" O a//roac i cas !aa"!"t accordi to tis
!od"l, t" o/ti!al cas balac" o"d.
2*b< =
/a"t /a4e# 5!e"tion" and An"we#"
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4
(i3) $ ir! as a st"ad cas ilos ad o#tlos ic occ#rs at
r"#lar it"r3als.
(3) $ ir! do"s ot ic#r a cost d#" to sorta" o cas ". lost
i3"st!"t o//ort#iti"s.
(ii) *" /ras" idicati tat cas balac"s ill b" r# do at a "3" rar"
tro#o#t t" "ar !"as tat o a3"ra" t" ir! ill "ar it"r"st o 9K
o t" a!o#t o loa borro"d. *" ir! /as it"r"st at 18K, it ill""rat" it"r"st ico!" at 9K it"r"st rat", " t" borro"d #d is
/lac"d i a otic" d"/osit X
Alte#nati-e ((
't"r"st car"s /aabl"T 18K x 150! (27.00!)'t"r"st ico!" o d"/osit T 9K x 650! 1.50!
N"t costit"r"st car"s 1.50!
$dd Clat arra"!"t ""s (50,000) 0.50!
N"t cost o t" o/tio (1.55!)
Alte#nati-e (
*" .150! ill b" rais"d ro! sal" o sort t"r! !ar"tabl" s"c#riti"s.
*"r"or" t"r" ill b" co3"rsio costs "3"r ti!" t" s"c#riti"s ar" sold tor"aliD" cas. *is ca b" d"t"r!i"d #si Ba#!ol >od"l. "r"
$#al cas r"#ir"!"t T 150! *
*rasactioco3"rsio "" T 15,000 b
't"r"st rat" o sort t"r! s"c#riti"s T 12K '
O/ti!al cas balac"i
2*b
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*" ir! r"#ir"s 150! /.a.
o"3"r, t" cas ilo ad o#tlo occ#rs at a st"ad rat". *"r"or" t"
a3"ra" cas o#tlo T W x 150! T 75!*" it"r"st rat" or"o" o sort t"r! !ar"tabl" s"c#riti"s at 12K
12K x 75 T (9,000,000) A a cost
$dd co3"rsio cost (67,42)'t"r"st ico!" o sort t"r! d"/osit 214,0
N"t cost (9,15,09)
*" $lt"rati3" 1 is b"tt"r.
(b) (i) $ccordi to >ill"r Orr >od"l o cas !aa"!"t
O/tioal cas balac" M T Li
+4
6
"r" b T tras"r (co3"rsio cost) T 120
i T 't"r"st rat"da o sort t"r! s"c#riti"s T 65
9.465K/.a
T0.00026
YZ T -ariac" o dail cas los T (stadard d"3iatio)Z
T 22.750Z T 517,562,500
% T %o"r!ii!#! cas balac" T 87,500
M T 87,5004x0.00026
562,500x120x517,+
T 56,7.8 + 87,500
/a"t /a4e# 5!e"tion" and An"we#"
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M
%
*" d"cisio crit"ria or tis !od"l is(i) ' t" cas balac" !o3"s ro! M A , t" ir! as "xc"ss cas T A M ic
so#ld b" i3"st"d b b#i sort t"r! s"c#riti"s.
(ii) *" ir! so#ld s"ll sort t"r! !ar"tabl" s"c#riti"s to r"aliD" cas i t" cas
balac" d"cli"s to lo"r li!it %. *" a!o#t r"aliD"d T M E %(iii) *" ir! so#ld !aitai a cas balac" ra" (s/r"ad T A %) i." 255,662 A 87,500
B#o s"c#riti"s
EMT256662E14874T112,788
ME%T14,874E87,500T56,74
%o"r li!it T87 500
O/ti!al T 14,874
;//"r li!it T
256 622
An"we#" /a"t 4a4e#" 8
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E P t"r!s)
'cr"a!"tal iitial ca/ital
Not" 1
87,000 1,000
100,000
(,000)E
(5,000)
92,000
Note: ' t" " !aci" is ac#ir"d, t" o3"ra#l cost ill ot b"ic#rr"d sic" "xisti !aci"s ill b" dis/os"d o. ' t" abs"c" o tax
rat", t" ir! ill ot ""rat" a tax si"ld or ill ot /a additioal taxro! t" dis/osal o t" "xisti ass"t.
&"call *ax si"ld T %oss o dis/osal o ass"t x tax rat"
*ax /aabl" A ai o dis/osal o $ x tax rat" (o#t lo)
E
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O4e#ating
co"t"
New mac'ine"
O4e#ating co"t
7 exi"ting mac'ine"
Sa-ing"
&a s#ar ca"
%abo#r
-ariabl"
"x/"s"sCix"d "x/"s"s
Cactor o3"r"ad
>ait"ac"
162,000
,900
2,275
7,800
4,500
60,000 x T 180,000
150 x T 4,050
925 x T 2,775
2,700 x T 8,100
2,000 x T 6,000
18,000
150
500
00
1,500
'cr"a!"tal sa3is T "aris b"or" d"/r"ciatio S tax%"ss icr"a!"tal d"/r"ciatio /.a. (o cas it"!)
'cr"a!"tal "aris b"or" tax*ax
'cr"a!"tal "aris at"r tax
$dd bac icr"a!"tal d"/r"ciatio /.a.
$#al o/"rati cas los
20,450 9,25
11,125E
11,125
9,25
20,450
Note: ' tax is ior"d t" a#al o/"rati cas los T B*. *" "!aci" as 10 "ars o "coo!ic li" ic t" "xisti !aci"s still a3"10 "ars to o (t" "r" bo#t 5 "ars ao ad ar" b"i d"/r"ciat"d o3"r
a 15 "ar "coo!ic li". *"r"or" disco#t t" cas los ad sal3a"
3al#" at 10K cost o ca/ital ad 20K as r"#ir"d #si 10 "ar /"riod.
(tem Amo!nt Timing /26>,
n
/2 /2F?>,
n
/2
'c. o cas los
'c. sal3a" 3al#"
*otal 'cr"a!"tal P-
20,450
2,700
1 A 10
/.a
10
6.145
0.86
125,665
1,042
126 707
4.192
0.162
85,726
47
86 16
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86 /a"t /a4e# 5!e"tion" and An"we#"
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*r"d is" it is cl"ar t" co!/aHs /roitabilit as d"cli"d o3"r t" "ars
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E Pro3id" lo"r cost o d"bt
E No i!!"diat" dil#tio o o"rsi/ ad P
E Pro3id"s "#it iac" o co3"rsio
E 't"r"st car"s ar" tax alloabl" "c" tax si"ld.
5UEST(ON S(
(a) (i) Borroi additioal d"bt ca/ital ic ta" /riorit car" i cas" o
li#idatio.
(ii) is/osal o ass"ts #s"d as collat"ral or loas
(iii) Pa!"t o i di3id"ds ic r"d#c" t" cas or i3"st!"t.
(i3) $ss"t s#bstit#tio
' a ir! s"lls bods or t" stat"d /#r/os"s o "ai i lo 3ariac" /roF"cts,t" 3al#" o t" sar"old"rs "#it ris"s ad t" 3al#" o bodold"rs clai! is
r"d#c"d b s#bstit#ti /roF"cts ic icr"as" t" ti!" 3ariac" rat".
(3) ;d"r i3"st!"t
$ ir! it o#tstadi bods ca a3" ic"ti3" to r"F"ct /roF"cts ic a3" a/ositi3" NP- i t" b""it or! acc"/ti t" /roF"ct accr#"s to t"
bodold"rs.
'ad"#at" disclos#r"
al" o ass"ts #s"d to s"c#r" cr"ditors
(b
)
&"str#ct#r" bod co3"ats icl#d" t" olloi
(i) &"strictio o i3"st!"ts, lats /roits !o3"!"t i s#c ris 3"t#r"s. *"ai! to disco#ra" ass"ts s#bstit#tio.
87 /a"t /a4e# 5!e"tion" and An"we#"
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*AY ?>>?
5UEST(ON ONE(a) Boo 3al#" A istorical or balac" s""t 3al#"
Boo 3al#" o a ass"t is d"t"r!i"d #si t" "t ass"t basisli#idati !"tod
"r", t" 3al#" o a sar" i."
-al#" o a sar" T N"t ort ("#it)QQQ T *otal $ss"ts A *otal %iabiliti"s
No. o ordiar sar"s No. o ordiar sar"s
*" !ai "a"ss o t" boo 3al#" 3al#atio is tat t" data #s"d is istorical.
0e4lacement 2al!e:
'ts bas"d o t" cost o r"/laci t" "xisti ass"ts. o"3"r, ol t" /rod#cti3"ix"d ass"ts ca b" r"/lac"d at ao sic" c#rr"t ass"ts ar" circ#lati ori
ca/ital.
&"/lac"!"t 3al#" T &"/lac"!"t
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i3id"d co3"r T
P
P
8 T 1 ti!"
8
18 T 2 ti!"s
9
E :-% as i"r di3id"d b"ca#s" o t" i P ad lo"r >P.
E Cor P ratio a i3"stor ill ta" 20 "ars to r"co3"r is i3"st!"t
ro! :-% as co!/ar"d to 15 "ars i :%. :% is t"r"or"/r""rabl", b"ca#s" it o"rs a sort"r /abac /"riod.
E Cor di3id"d co3"r :% is b"tt"r sic" di3id"ds ar" !or" s"c#r"
sic" t" ca b" /aid tic" ro! "aris attrib#tabl" to ordiar
sar"old"rs.
:-% as a /"rc"ta" di3id"d /ao#t ratio (P T P T .8)
ad t#s a lo"r di3id"d co3"r.
(ii) ic" " ar" #si di3id"d rot !od"l s/"ciicall, t" 3al#" o a
sar" P0T
P0T ( )"10d
+
d0T P or t" "ar F#st "d"d T 5 "ars
"T
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5UEST(ON TDO
(a) (i) O T cost/#rcas"xcost
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18K
?"ar 0[140,000 x (1 A 0.25)\ x
1.0
?"ar 1 A 8 (67,500 x 4.078)NP- or r"Eoraisatio
T 94,50
T 275,265
T 180,765
(b) J'* r"/r"s"ts a co!/l"t" !aa"!"t /iloso/ ad is !or" ta F#st a coll"ctio
o t"ci#"s. 't ai!s to !a#act#r" to ord"r or "ac c#sto!"r ad to "li!iat" idl"r"so#rc"s i all ar"as o t" co!/a. 't is a t"ci#" ic "abl"s !aa"!"t to
ord"r ad b# at it r"#ir"s at tat /artic#lar /oit i ti!".
' t"r!s o /#rcasi, a J'* sst"! ai!s to "s#r" tat co!/o"ts ar" d"li3"r"d
F#st i!!"diat"l /rior to t" ""d to #s" t" i t" /rod#ctio /roc"ss. 't t"r"or"r"#ir"s a clos" r"latiosi/ to b" b#ilt #/ b"t"" c#sto!"r ad s#//li"r, t" lat"r
b"i r"#ir"d to d"li3"r #alit ass#r"d co!/o"ts to !atc /rod#ctio sc"d#l"s.
#//li"rs i t#r so#ld b""it it ro! air loEt"r! sal"s as t" /#rcas"r r"d#c"s
its #!b"r o so#rc"s. *is so#ld allo t" s#//li"r to aci"3" scal" "coo!i"s ad
i!/ro3" /rod#ctio /lai. *" c#sto!"r so#ld aci"3" a r"d#ctio i ord"ri
costs ad stoc l"3"ls ad associat"d carri costs.
5UEST(ON T10EE(a) 't"! dir"ctl 3ari it sal"s T Ko 2001 sal"s
N"t ix"d ass"tsT
240,000
124,800x 100 T
52K
tocT
240,000
B8400x 100 T
16K
b
An"we#" /a"t 4a4e#" 88
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*otal icr"as" i sal"s T 1,200,000 A 240,000,000 T
(22,800,000)
'cr"as" i total ass"ts T 8K x 91,200,000 T 75,696,000;e"": icr"as" i c#rr"t liabiliti"s T 25K x 91,200,000 T
(22,800,000)
;e"": r"tai"d "aris
?"ar 2002 N"t Proit T 8K x 276,000,000 T 22,080,000
;e"": 80K di3id"ds T (17,664,800) (4,416,000)
&"tai"d "aris
?"ar 200 N"t Proit T 8K x 1,200,000 T 26,496,000
;e"": 80K di3id"ds T (21,196,800)
&"tai"d "aris (5,299,200)
xt"ralI iacial ""ds (co!!"rcial /a/"r) 4,180,000
(b) (i) /#o)o#ma Balance S'eet a" at 76 >7
Net )ixed a""et"
toc
"btors
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(b) /#oGect
Yea# Ca"' )low" /2(F?>, n /.2
12
4
56
7
2,000,0002,200,000
2,080,000
2,240,000
2,760,000,200,000
,600,000
*O*$% P.-
%"ss iitial ca/ital
N,P.-. (+3")
0.80.694
0.579
0.482
0.4020.5
0.279
1,666,0001,526,800
1,204,20
1,079,680
1,109,5201,072,000
1,004,400
8,662,720
(8,000,000)
662,720
/#oGect Y
Yea# Ca"' )low" /2(F?>, n /.2
1
2
4
4,000,000
,200,000
4,800,000
800,000
0.8
0.694
0.579
0.482
,2,000
2,082,000
2,779,200
85,600
8,578,800(8,000,000) 578,000
(c) /#oGect
N.P.- @N.P.- @
'.&.& T
T
24K T20K T
20K +
20K + 2.8 T
E296,120662,720
( 20K24K296,120662,720
662,720
+
22.8K
An"we#" /a"t 4a4e#" 9>
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5UEST(ON F(2E
(a) C or sal3atio o
t" 3"r costatl ors"i Balac" o Pa!"t /robl"!
5UEST(ON S(
(a) (i) *atc'ing
*" traditioal 3i" is tat ix"d ass"ts so#ld b" iac"d b t"r! so#rc"s
o iac" ad c#rr"t ass"ts b a !ixt#r" o lo t"r! ad sort t"r!
96 /a"t /a4e# 5!e"tion" and An"we#"
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' t" iss#" is s#cc"ss#l it ill ot siiicatl ca" t" 3oti str#ct#r".
' #d"rrit"rs ar" rais"d t" t" a!o#t o iac" tat ill b" o ad#arat""d
' t" !ar"t is i, >alidi %"is#r" 'd#stri"s so#ld b" abl" to aci"3" a rits
iss#" at a r"lati3"l lo cost sic" l"ss sar"s ill b" iss#"d. (%o"r loatatio costs)
%"ss ad!iistrati3" /roc"d#r"s ". o ""d or /ros/"ct#s.
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>?
5UEST(ON ONE(a) $ cos"r3ati3" /olic ad a ar"ssi3" /olic
(i) A con"e#-ati-e 4olic
' a cos"r3ati3" ori ca/ital !aa"!"t /olic, a oraiDatio #s"s !or"
o loEt"r! so#rc"s o iac". %oEt"r! so#rc"s ar" #s"d to iac" all
/"r!a"t ori ca/ital (c#rr"t ass"ts) ad /art o t"!/orar c#rr"t ass"ts.
*" ir! is t"r"or" !or" li#id b#t sacriic"s /roitabilit as it"r"st car"s
a3" to b" /aid o lo t"r! iac" "3" " it is ot r"#ir"d.
(ii) An agg#e""i-e 4olic
$ ar"ssi3" /olic #s"s !or" o sortEt"r! iac". $ll s"asoal ori
ca/ital r"#ir"!"ts ad /art o /"r!a"t c#rr"t ass"ts ar" iac"d ro!sortEt"r! so#rc"s. *is /olic l"ad to i"r l"3"ls o /roitabilit at t"
"x/"s" o li#idit.
$% $i% /#o4o"al A
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Co"t"
isco#ts "x/"s"
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(a) D' ca"' )low" a#e con"ide#ed to e mo#e #ele-ant )o# t'e )ollowing #ea"on":
*" ar" ot a"ct"d b t" acco#ti /olici"s ado/t"d i /r"/ari iacial
stat"!"ts
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$iii%.
P -al#" o a#al o/"rati caslos @12K T (9985 x ,605)
P.- o t"r!ial cas los @ 12K T 1.000 x 0.567
*otal P.-
;e""iitial ca/ital
NP- "ati3"
5.996
7,71
4.67
(60.125)
(16.758)
ic" t" NP- is "ati3", t" "xisti "#i/!"t so#ld ot b" r"/lac"d.
(i3
)
*" !ii!#! at"r tax a#al caslo to !a" t" /roF"ct
acc"/tabl"
S'.>>>
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$ii% Deig'ted ma#ginal co"t o) ca4ital )o# eac' o) t'e #ange" o) )inancing:
Cro! 0 . 12 !illio
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(iii
)
+#a4'ical ill!"t#ation o) D*CCin-e"tment 4#oGect" (00 and le-el o) )inancing.
5UEST(ON FOU0
(a) (nc#ea"e 6
'cr"as"d i ass"ts 00 x 0.15 x 15
'cr"as"d i liabilit 00 x 0.15 x 0.4
&"tai"d "aris 00 x 1.15 x 0.12 x 0.75
$dditioal #ds r"#ir"d
Cor aci"3" rot o 15K
S'.m
67.5
(18)
(1.05)
18.45
25
24
2
22
21
20
19
18
17
16
15
2 4 6 8 10 12 14 16 18 20
$
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$d% ;imitation o) )o#eca"ting met'od
*" "t /roit !ari !a 3ar ro! t" c#rr"t 12K
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$a% C#o""o#de# li"ting
%isti o s"c#riti"s iss#"d b a or"i iss#"r o a do!"stic s"c#riti"s "xca".
*" iss#"rco!/a is #s#all list"d o !or" ta o" "xca" i s"3"ral di"r"t
co#tri"s. xa!/l"s E ast $rica Br""ri"s %td. ($B%) ad :"a $iras ar" list"d o
t" N ad ;ada toc xca".
$% D' "eek c#o""oa#de# li"ting
&ais" d"bt or "#it ca/ital "s/"ciall "r" #ds a3ailabl" i do!"stic !ar"t ar"is#ici"t or !or" costl.
i3"rsiicatio ad s/r"adi ris cr"ati icr"asi stabilit o sar" /ric"s.
'cr"as" tradi 3ol#!" o sar"s sic" sar"s ar" o"r"d i a id"r !ar"t. Boost t" co!/a stat#s as a tr#l lobal /la"r.
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JUNE ?>>7
5UEST(ON ONE
(a) &""r to #"stio to 4 J#" 2001
(b) (i). x/"ct"d rat" r"t#r o ordiar sar"s is "#al to cost o "#it, "
:" A do(i +) +
Po
do(1+) T x/"ct"d .P. T .1.20
/o T c#rr"t >.P.. T 0
T rot rat" T 10K
" E 1.20 + 0.10 A 0.14 T 14K
0
(ii). "ct o cost os
E "bt d
E "b"t#r"s a3" a d"iit" !at#rit /"riod "c"
:d T 't (' A *) + (! A 3d) 1
(! + 3d)2 T (6K x 150)( 1 A 0.) + (150 A 100)1100
(150 + 100) W
T 6. +0.5 T 6.8 x 100 T 5.44K
125 125
3d T c#rr"t !a" 3al#" ad ! T /ar!at#rit 3al#"
E cost o /r""r"c" sar" ca/ital / /r""r"c" sar"s ar" s"lli at /ar "c"
!ar"t /ric" T /ar 3al#" ad / T co#/o rat" T 10K
(iii). >.-. o "#it T . 0 x ! sar"s T 90 !
> - d bt 100 0 2 d b t 20
6>6 /a"t /a4e# 5!e"tion" and An"we#"
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5UEST(ON TDO
(a). '!/ortac" o ca/ital b#d"ti d"cisio
E *" a3" lo t"r! i!/licatios to t" ir! ".. t" il#"c" lo t"r!
3ariabilit o caslosE *" ar" irr"3"rsibl" ad 3"r costl to r"3"rs"
E *" i3ol3" siiicat a!o#t o iitial ca/ital.
(b) (i). *" "t boo 3al#" (NB-) o "xisti ass"t at"r
2 "ars is 4! A (4!5rs x 2 "ars) T 2.4!
E *" . 2.4! ill b" d"/r"ciat"d or 10"ars i.". 0.240! /.a.
E
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?"ar 'cr"!"tal B* ('E*) *ax
i"ld
O/"rati
caslo
P-'C
10K
P-
1
2
45
6
7
8
910
10
(0.5 A 0.28)(0.7) T 0.049
(0.40 E 0.0)(0.7)T0.070
(0.42 A 0.2)(0.7)T0.070
(0.41 A 0.4)(0.7)T0.049(0.41 A 0.4)(0.7)T0.049
(0.8 A 0.2)(0.7)T0.042
(0.8 A 0.1)(0.7)T0.049
(0.5 A 0.28)(0.7)T0.049
(0.0 A 0.26)(0.7)T0.028(0.28 A 0.24)(0.7)T0.028
*"r!ial caslo A
*otal icr"!"tal P.-
%"ss icr"!"tal iitial ca/ital
'cr"!"tal N.P.- A3"
0.18
0.18
0.18
0.180.18
0.18
0.18
0.18
0.180.18
E
0.229
0.250
0.250
0.2290.229
0.222
0.229
0.229
0.2080.208
(0.4)
0.909
0.826
0.751
0.680.621
0.564
0.51
0.467
0.4240.86
0.86
0.208
0.207
0.188
0.1560.142
0.125
0.118
0.107
0.0880.050
(0.11
)
1.288
(5.71)
(4.422
)
't is ot ortil" to r"/lac" t" !aci".
5UEST(ON T10EE
(a) %i!itatios o ratios
E *" ar" bas"d o istorical data
E *" ar" "as to !ai/#lat" d#" to di"r"t acco#ti /olici"s ada/t"d b t" ir!s
E *" ar" ol #atitati3" !"as#r"s b#t ior" #alitati3" iss#"s s#c as #alit o
s"r3ic", t"coloical io3atios "tc
E *" costatl ca" "c" ar" co!/#t"d at o" /oit i ti!" ".. li#idit ratiosca" o ad t"
* d Ht i t t t i l ti
6>7 /a"t /a4e# 5!e"tion" and An"we#"
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T 2.14 ti!"s
(c) ori ca/ital ccl"T tocoldi /"riod "btors
+coll"ctio/"riod
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4i
Y2T dail 3ariac" o cas lo T (20000)2 T 40,000,000,000
l T !ii!#! cas balac" T . 500,000
b T trasactio cost T . 150i T dail it"r"st rat" T 14K T 0.086K T 0.00086
65
D T x 15 x 40000000000 + 500000 T 10546 T 510,547 4 x 0.00086
(c) E O3"rtradi r""rs to a att"!/t b t" ir! to aci"3" too !#c sal"s 3ol#!" too#icl ito#t ad"#at" ca/ital to s#//ort t" icr"as" i sal"s
E *" s!/to!s o o3"rtradi ar".
E ra/id icr"as" i sort t"r! iaci to iac" sal"sE i c#rr"t liabiliti"s ad lo li#idit ratios
E ra/id icr"as" i sal"s 3ol#!" o3"r t" "ar
E icr"as" i t" "ari o t" ir! as "#it ca/ital r"!ai costat.
5UEST(ON F(2E
(a) i"r"c" b"t"" a bro"r ad a d"al"r
E a bro"r b#s ad s"lls sar"s o b"al o t" i3"stors as a a"t. $ d"al"r b#s
sar"s o is o b"al as a /rici/alE a bro"r "ars co!!issio bas"d o K o 3al#" trasactio. $ d"al"r "ars /roits
b"i t" di"r"c" b"t"" s"lli ad b#i /ric"s.
E *" r"t#rs o bro"rs is ot il#"c"d b ca"s i sar" /ric" #li" tat o
d"al"rs.E Bro"rs i3" i3"st!"t ad3ic" to !"!b"rs o t" /roit b#t d"al"rs caot.
(b) $d3ata"s o a3i a d"al"r i t" !ar"t
E " !a"s sar"s a3ailabl" to stoc bro"rE " is a !ar"t !a"r
E " icr"as"s t" li#idit ad !ar"tabilit o sar"s.
6> /a"t /a4e# 5!e"tion" and An"we#"
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(b). Cactori ad i3oici disco#ti actori.
E '3ol3"s sal" o d"btors to a l"d"r
call"d actor.E *" actorl"d"r ta"s t"
r"s/osibilit or bad d"bts o d"bts
actor"d
E %"d"ractor ta" t" r"s/osibilito coll"ctio o d"bt.
E *" b#"rd"btor is otii"d o t"
actori arra"!"t.
E '3oic" disco#ti
E '3ol3"s #s" o d"btors as acollat"rals"c#rit or sort t"r!
borroi
E t" l"d"r as o o#s o bad d"bts.
E *" s"ll"rborro"r still a3" t"o#s o d"bt coll"ctio.
E *" b#"rd"btor is ot otii"d o
t" i3oic" disco#ti arra"!"t.
(c). $ #d"rrit"r is a iacial istit#tio tat #d"rta"s to b# all sar"s ot bo#t b
!"!b"rs o t" /#blic . *" istit#tio t"r"or" act as a is#r"r ad "s#r"s tat.(i). $ll sar"s ar" s#bscrib"d or
(ii) t" ir! is abl" to rais" t" r"#ir"d ca/ital
*" #d"rrit"r is /aid a #d"rtai ""s or is s"r3ic"s. " co#ld lat"r s"ll t"
sar"s to /ot"tial i3"stors at a ai (/ric" abo3" t" iss#" /ric").
An"we#" /a"t 4a4e#" 6>
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>7
5UEST(ON ONE
$a%
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$% Com4!tation o) t'e mean
>ost s"c#rit !ar"t idicators ar" calc#lat"d as so!" sort o arit!"tic
a3"ra". *" "o!"tric a3"ra" is a alt"rati3" co!/#tatioal /roc"d#r", itr"s#lts i a s!all"r b#t si!ilar 3al#" tat is l"ss 3olatil" ta a arit!"tic !"a
calc#lat"d ro! t" sa!" sa!/l" o s"c#riti"s.
(6) *i!i it"r3al o ic calc#latios o id"x ar" bas"d.
(7) *" /ric"s to #s" or co!/#tatio " clos", !"a, lo, i.
$c% Finite ea#ning" g#owt' model:
Po T N o(1+)1
(Po) + o(1+)N
(P)N EEEEEEEEEEEEEEEEEEEEEE EEEEEEEEEEEEEEEEEEEEEEEE tT1 (1+)1 (1+)N
o T
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5UEST(ON TDO
(a) >>
P.-. o ilos(87,0000.16)'itial cas o#tlo
Net /#e"ent 2al!e
54,750
400,00
0
6@7,
>
(ii) Cor "ac /roF"ct t" '&& so#ld b" r"at"r sic" NP- is /ositi3" at 16K.
Cor /roF"ct $, " #s" 2 rat"s, 20K ad 28K to a//roxi!at" '&&.
?>
S' >>>
28K 000
6>9 /a"t /a4e# 5!e"tion" and An"we#"
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#d"r tis /roF"ct. '&& i3"s /ro/ortioat" r"t#rs ad /r"s#!"s tat cas los
ar" r"Ei3"st"d at t" '&& ic is ot r"alistic.
5UEST(ON T10EE
$a% Financial #i"k
*is r""rs to t" 3ariabilit i "aris a3ailabl" to ordiar sar"old"rs asa r"s#lt o #si d"bt iac" ic as a ix"d it"r"st car".
' ti!"s o "xc"ssi3" /roits, t" "aris ar" "ac"d d#" to lo"r car"sor it"r"st. o"3"r d#ri /"riod o lo /roits, t" sar"old"rs ris ot
"tti a r"t#r sic" it"r"st o d"bt is to b" /aid irr"s/"cti3" o /roits
"ar"d.
O4e#ating #i"k
O/"rati ris o t" ot"r ad is ca#s"d b ic#rr"c" o ix"d costs i/rod#ctio /roc"ss. 't is t" 3ariabilit i o/"rati ico!" as a r"s#lt o
ic#rri ix"d o/"rati costs.
" ix"d costs ar" i, tis 3ariabilit ill b" i"r or a ca" or!o3"!"t i sal"s ad "c" o/"rati ris is i"r.
$% (i) aris /"r sar" T *a#keting 4#ice"'a#e
/E #atio
T 8.4
6
T S'.6.@
O/"rati ico!" is t" "aris b"or" it"r"st ad tax
0.7 x
x
T 6 !illio x 1.4
T 8,400,000
T .8400
An"we#" /a"t 4a4e#" 66>
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N" /roF"ctO/"rati ico!"
%"ss it"r"stN"t /roit b"or" tax
%"ss *ax (0K)Proit at"r tax
arissar"s
5,60017,600
E17,600
5,28012,2012,207,600
6.?6
5,60017,600
(12K x 10!) 1,20016,400
4,92011,48011,4806,000
S'.6.967
't is b"tt"r to iac" #si d"bt iac" sic" it r"s#lts i lo"r costs ad "c"
a i"r "aris /"r sar".
(i3) *" stat"!"t is tr#" " t" o/"rati ico!" is i. ;d"r s#c
circ#!stac"s P ill icr"as" as a r"s#lt o #si d"bt iac". o"3"r, it" l"3"l o o/"rati ico!" is lo, d"bt iac" ill b" "x/"si3" sic"
it"r"st as to b" /aid, *" P or a "ar"d co!/a #d"r s#c circ#!stac"s
!a b" "3" "ati3". *is !a b" ill#strat"d as ollos
i.". t"r" is o ""d to #s" d"bt iac" i o/"rati ico!" is b"lo x. P
o#ld b" i"r i t" co!/a as allE"#it iac"d. B"od o/"rati
ico!" o .x d"bt o#ld r"s#lt i icr"as"d P.
( ) (i) t d >P t d 6 t d P P
x
"ar"d
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End o)
ea#
Ex4ected P T 80 0.42 4.56
46.92
5UEST(ON FOU0
(a) Cix"d $ss"ts
*#ro3"r
al"sQ Q
Cix"d $ss"ts
T C$ *O x C$
T 1.8 x 15,000
T 15,000
ross Proit >ari
T
ross Proit x 100
al"s
T al"s x ross /roit !ari
T 15,000 x 45K
T 60,750
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't"r"st car"s T4
21,600T 5,400
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tat t"r" o#ld ot "xist o3"r3al#"d or #d"r3al#"d s"c#riti"s.
(d) Facto#" !nde#ling t'e low #ate o) li"ting o# com4anie" in a "tock exc'ange:
Unde#-al!ed "'a#e"#" to !ar"t i"ici"c t" sar"s o t" co!/ai"s ar" at ti!"s #d"r3al#"d
bas"d o t" !ar"t 3al#". *is l"ads to lo !ar"t 3al#" o t" co!/a.
;i"ting #e!i#ementtri"t coditios a3" to b" !"t b a co!/a to #ali or listi. o!"
co!/ai"s a3" cosid"r"d tis /roibiti3".
Com4liance mea"!#e"trict r#l"s ad r"#latios !#st b" co!/li"d it b t" #ot"d co!/ai"s.
*"r" "xists coti#"d scr#ti ad s#r3"illac" o t" #ot"d co!/ai"s b t"
ar"t ad t" Nairobi xca".
;ack o) 4#i-ac$ lot o ior!atio ""ds to b" disclos"d or t" #ot"d co!/ai"s. *"
co!/ai"s ar" s#bF"ct"d to a lot o /#blic scr#ti. Pros/"cti3" co!/ai"s !a"ar loss o /ri3ac associat"d it listi.
;imited and 4!lic com4an #e!i#ement.Ol li!it"d ad /#blic co!/ai"s ar" allo"d or listi. $ #!b"r o
co!/ai"s ar" /ri3at" co!/ai"s ad !a t"r"or" ot #ali.
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Ciacial str#ct#r" is t" /ro/ortio o "ac so#rc" o iac" i a ir! bas"d
o bot loEt"r! ad sortEt"r! so#rc"s o ca/ital ("tir" l"t ad sid" o t"
balac" s""t).
$i-% Fo#mal ma#ket" and o-e#t'eco!nte# ma#ket"
Cor!al !ar"ts ar" oraiD"d s"c#rit "xca"s ic d"al it s/"ciic
istr#!"ts. *" o/"ratio o s#c or!al !ar"ts is il r"#lat"d,acc"ssibl" to a " ad d"al it stadardiD"d istr#!"ts.
O3"r t" co#t"r !ar"ts ar" or!al arra"!"ts tro# ic t" it"r"st"d
/arti"s trasact. *" d"als i tis !ar"t !a b" cocl#d"d o3"r t" /o" or
tro# co!/#t"r t"r!ials.
$% Facto#" t'at 'a-e limited t'e de-elo4ment o) t'e -ent!#e ca4ital ma#ket:
-"t#r" ca/ital is a or! o i3"st!"t i " s!all ris "t"r/ris"s r"#ir"d to "t
t"! start"d b s/"cialists call"d 3"t#r" ca/italists. -"t#r" ca/italists ar"
i3"st!"t s/"cialists o rais" /ools o ca/ital to #d " 3"t#r"s ic ar"
li"l to b"co!" /#blic cor/oratios i r"t#r or a o"rsi/ it"r"st. -"t#r"
ca/italists b# /art o t" stoc o t" co!/a at a lo /ric" i atici/atio tat
" t" co!/a o"s /#blic, t" o#ld s"ll t" sar" at a i"r /ric" ad
t"r"or" !a" a cosid"rabl" /roit.
%ac o ric i3"stors. *is l"ads to iad"#at" "#it ca/ital.
'"ici"t stoc !ar"t. *is i!/airs t" abilit o t" co!/a to dis/os" osar"s at a lat"r dat".
%ac o !aa"rial sills b t" o"rs o t" ir!.
il cos"r3ati3" a//roac b t" 3"t#r" ca/italists.
66 /a"t /a4e# 5!e"tion" and An"we#"
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JUNE ?>>@
5UEST(ON ONE$a% Co"t o) ca4ital
*is is t" rat" #s"d to disco#t t" #t#r" cas los o a b#si"ss, tod"t"r!i" t" 3al#" o t" ir!. *" cost o ca/ital ca b" 3i""d as t"
!ii!#! r"t#r r"#ir"d b i3"stors ad so#ld b" #s"d " "3al#ati
i3"st!"t /ro/osals.
' ord"r to !axi!iD" t" "alt o sar"old"rs, t" basic d"cisio r#l" istat i cas los r"lati to a i3"st!"t /ro/osal ar" "ati3", t"
/ro/osal so#ld b" r"F"ct"d. o"3"r, i t" disco#t"d cas los ar"/ositi3", t" /ro/osal so#ld b" acc"/t"d. *" disco#ti is carri"d o#t
#si t" ir!Hs cost o ca/ital.
D' co"t ca4ital "'o!ld e calc!lated wit' ca#e:
Cail#r" to calc#lat" t" cost o ca/ital corr"ctl ca i icorr"ct i3"st!"td"cisios b"i !ad".
"r" t" cost o ca/ital is #d"rstat"d, i3"st!"t /ro/osals ic so#ld
b" r"F"ct"d !a b" acc"/t"d. i!ilarl, "r" t" cost o ca/ital is o3"rstat"d, i3"st!"t /ro/osals !ab" r"F"ct"d ic so#ld b" acc"/t"d. ' bot cas"s, t" sar"old"rs o#ld
s#"r a loss.
Note *"r" is a i3"rs" r"latiosi/ b"t"" N.P.-. ad cost o ca/ital. *" i"rt" cost o ca/ital, t" lo"r t" N.P.-. ad 3ic" 3"rsa.
$% 0e!i#ed condition" )o# !"ing t'e DACC
*" $
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Ordiar sar" ca/ital a!o#t to b" rais"d T .525 E4! T 29.525!
N#!b"r o ordiar sar"s T+.40!
29.525! T 78,125 sar"s
/"ciic cost o r"tai"d "aris
P T 8 P T 5
>ar"t /ric" T 8 x 5 T 40
:" T 5(1.06)140+ 0.06 T 19.25K
Pr""r"c" sar"s10100x 100 T 10K
"b"t#r" 10100x 1000 T100
1001000x 100 T 10K
""cti3" cost T 10K (1 A 0.) T 7K
So!#ce Amo!nt /#o4o#tion S4eci)ic co"t Deig'ted co"t
&"tai"d "aris 4 8.9K 19.25K 1.7K
Ordiar sar" ca/ital 29.525 65.6K 20.72K 1.6K
10K /r""r"c" sar"s 10 22.2K 10K 2.22K
10K d"b"t#r"s 1.475 .K 6K 0.2K
45! 100 17.72K
$
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/#oGect ((
O#tla 50,000,000 + 18,000,000 T 68,000,000 T 68!
$dditioal o#tla 2,000,000 P-'C12K,2 T 2,000,000 x 0.797 T 1,594,000 T
1.594!
*otal o#tla T 68! + 1.594 T 69.594!
Ca"' in)low
T P.- o a#al x P-$C12K,5 T 20 x .605 T
72.10
T P.- o sal3a" 3al#" @12K T 20! x P-'C12K,5 T 20 x 0.567 T 11.4
*otal P.-8.44
%"ss iitial ca/ital
(69.594)
N.P.- 1.846
/#oGect (((
.H>'t"!
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=
M
$% *ille#O## ca"' management model
' or!al circ#!stac"s, casElos o a b#si"ss o #/ ad do i airl rado!
!a"r. *"r"or", ist"ad o ass#!i tat dail balac"s caot b" /r"dict"d
b"ca#s" t" !"ad"r i a rado! asio. *is i3"s ris" to a cas /ositio li" t"o" b"loI
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'cr"as" i cotrib#tio ad
Proit T 0.15 x 60 ! T .9!
$i% Ext#a in-e"tment, i) all deto#" take two mont'" c#edit
$3"ra" d"btors at"r sal"s S'". 'cr"as" (212x 00,000,000) 50,000,000
%"ss .66.?>>7
S'". >>>H
7>.66.?>>@
S'". >>>H
7>.66.?>>
S'". >>>HE!it ea#ning":
N P
An"we#" /a"t 4a4e#" 6?>
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Cor t" "ar "d"d 0 No3"!b"r 2004, t"r" o#ld b" s#ici"t "aris to ""ct
t" bo#s iss#".
o"3"r, tis bo#s o#ld iss#" o#ld a3" t" ""ct o dil#ti t" P asollos
aris("ar "d"d 0 No3"!b"r 2004) .12,000,000
*otal #!b"r o sar"s$t"r t" bo#s iss#" (6,000,000 + 1,500,000 7,500,000
*"r"or" P T 12,000,000 T . 1.60
7,500,000
*" ""ct o t" dil#tio o t" P !it b" a r"d#ctio i t" !ar"t 3al#" o t"
sar"s. o"3"r t" bo#s iss#" !it b" 3i""d b t" !ar"t as a3i a
a3o#rabl" ior!atioal cot"t ad t" 3al#" o t" sar"s !it b" s#stai"d or
"3" icr"as". $ot"r as/"ct to cosid"r is t" cas di3id"d "x/"ctatios o t"
sar"old"rs ad at ""ct oE/a!"t o t" cas di3id"d !a a3" o t"
!ar"t 3al#" o t" sar"s.
$c% 't !it b" /r#d"t to /a a cas di3id"d o a r"d#c"d scal" ad /"ra/s
co!/li!"t it it a s!all bo#s iss#" ic so#ld ot ra or di3id"d #til t""ar "d"d 0.11.2005, " t" "aris o t" co!/a b"i to so a
i!/ro3"!"t. *"r" is "!/irical "3id"c" soi tat ir!s "x/"ri"ci li#idit
/robl"!s or d"siri to r"tai "aris or r"i3"st!"t ca "3"rt"l"ss #s" bo#s
iss#" o sar"s ad co!bi" it it so!" cas di3id"d to a3" a /ositi3" i!/act ot" ar"at" !ar"t 3al#" o t"ir sar"s.
5UEST(ON F(2E
$a% Agenc #elation"'i4"ar"old"rs ad !aa"!"t
6?6 /a"t /a4e# 5!e"tion" and An"we#"
Ciacial !ar"ts /ro!ot" sa3is ad i3"st!"t b /ro3idi !"cais!s
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Ciacial !ar"ts /ro!ot" sa3is ad i3"st!"t b /ro3idi !"cais!s
b ic t" iacial r"#ir"!"ts o l"d"rs (s#//li"rs o #ds) ad
borro"rs (#s"rs o #ds) ca b" !"t. Ciacial istit#tios (s#c as /"sio
#ds, is#rac" co!/ai"s, bas, b#ildi soci"ti"s, #it tr#sts ad
s/"cialist i3"st!"t istit#tios). *"s" coll"ct #ds ro! sa3"rs to l"d tot"ir cor/orat" ad ot"r c#sto!"rs tro# t" !o" ad ca/ital !ar"ts or
dir"ctl tro# loas, l"asi ad ot"r or!s o iaci.
$ii% Se#-ice" t'at )inancial inte#media#ie" 4#o-ide:
*" ""ds o l"d"rs ad borro"rs rar"l !atc. *"s" di"r"c"s i
r"#ir"!"ts b"t"" l"d"rs ad borro"rs !"a tat t"r" is a i!/ortat
rol" or iacial it"r!"diari"s i t" iacial !ar"ts ar" to o/"rat"
"ici"tl.
1
.
0e4ackaging "e#-ice"
at"ri s!all a!o#ts o sa3is ro! a lar" #!b"r o idi3id#als ad r"E
/acai t"! ito lar"r b#dl"s or l"di to b#si"ss.
2 0i"k #ed!ction
Placi s!all s#!s ro! #!"ro#s idi3id#als i lar", "llEdi3"rsii"d
i3"st!"t /ortolios, s#c as #it tr#st.
;i!idit t#an")o#mation
Brii to"t"r sortEt"r! sa3"s ad loEt"r! borro"rs (".. b#ildi
soci"ti"s ad bas). Borroi sort ad l"di lo is ol acc"/tabl"
"r" r"lati3"l " sa3"rs ill at to itdra #ds a i3" ti!".
4 Co"t #ed!ction
>ii!iDi trasactio costs b /ro3idi co3"i"t ad r"lati3"l
i"x/"si3" s"r3ic"s or lii s!all sa3"rs to lar"r borro"rs.
5 Financial ad-ice
An"we#" /a"t 4a4e#" 6??
*" !or" distat t" !at rit dat" o a bod t" art"r b"lo or abo " /ar al "
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*" !or" distat t" !at#rit dat" o a bod, t" art"r b"lo or abo3" /ar 3al#"t" /ric" ill b" i3" t" co#/o rat" ad !ar"t rat" r"latiosi/.
coo!ic "3iro!"t /olic
(b) T'e "'a#e" co!ld e made mo#e att#acti-e in t'e )ollowing wa":
*" sar"s co#ld b" Rco3"rtibl" /r""r"c" sar"sH, alloi t" old"rs to a3" acac" to co3"rt it ito "#it sar"s.
*" sar"s co#ld b" c#!#lati3" so tat di3id"ds caot b" /aid a o" "ar, t"/r""r"c" sar"old"r ill still a3" t" /ossibilit o r"c"i3i /r"3io#s /"riods
di3id"ds " #ds ar" a3ailabl".
*" co!/a co#ld o"r a i rat" o di3id"ds o t" sar"s a rat" "ll abo3" t"it"r"st i"ld o ix"d it"r"st s"c#riti"s.
*" /r""r"c" sar"s co#ld b" !ad" r"d""!abl".
*" /r""r"c" sar"s co#ld b" o t" /artici/ati id, "titli t" old"r to/artici/at" i #rt"r sar" o t" /roits at"r t" a3" r"c"i3"d t"ir ix"d /"rc"ta"
i3id"ds rat".(c ) (i) $ P ratio is t" ratio o t" !ar"t 3al#" o a sar" to "aris /"r sar" it is ot"
d"scrib"d as t" #!b"r o "ars "aris r"#ir"d b"or" a i3"stor r"co3"rs t"
/#rcas" /ric" o a sar" (o t" ass#!/tio tat a#al "aris ar" costat). *"
"aris o a co!/a it a i P ratio ar" t"r"or" 3al#"d !or" b i3"stors
b"ca#s" t" ar" /r"/ar"d to ait !or" "ars to r"co3"r t"ir i3"st!"t. $ i P
ratio t"r"or" t"ds to idicat" tat a co!/a is so!"o R!or" s"c#r"H. *#s
$ "llE"stablis"d co!/a is li"l to a3" a i"r P ratio ta a co!/a
ic is "lE#ot"d o t" stoc "xca"I
$ lar" co!/a it a bi"r ass"t baci is li"l to a3" a i"r P ratio
ta a s!all co!/a it s!all"r ass"t bas" A b"ca#s" as