Unit: Advanced Financial Management
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| Year | 1 | 2 | 3 | 4 | 5 |
| Cash flows (Sh. million) | 800 | 950 | 1,100 | 1,250 | 1,400 |
| Year | 2025 KSh.“000” | 2026 KSh.“000” | 2027 KSh.“000” | 2028 KSh.“000” | 2029 KSh.“000” |
| Cash inflows | 2,000 | 2,200 | 2,420 | 2,662 | 2,928 |
| Less: Variable cash outflows | (600) | (660) | (726) | (799) | (878) |
| Less: Fixed cash outflows | (200) | (200) | (200) | (200) | (200) |
| Less: Depreciation | (1,000) | (1,000) | 1,000 | 1,000 | 1,000 |
| Cash flows before corporate tax | 200 | 340 | 494 | 663 | 850 |
| Less: 33% corporate tax | (66) | (112) | (163) | (219) | (280) |
| Add: Depreciation | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 |
| After tax corporate tax flows | 1,134 | 1,228 | 1,331 | 1,444 | 1,569 |
| Less: 10% withholding tax on dividend | (113) | (123) | (133) | (144) | (157) |
| Net cash to be repatriated | 1,021 | 1,105 | 1,198 | 1,300 | 1,412 |
| 1. | The exchange rate of KSh/GBP is KSh 170 to 1GBP. |
| 2. | The difference in the interest rates between Kenya shillings (KSh) and Great Britain Pound (GBP) is provided by the following formula: \(\displaystyle F_t=S_0 \times \left[\frac{1 + \text{r}_d}{1+ \text{r}_{\text{f}}} \right]^t\) Where: \(F_t\) is the forward exchange rate at time “t” \(S_0\) is the spot exchange rate \(r_d\) is the nominal interest rate in domestic currency \(r_f\) is the nominal interest rate in foreign currency |
| 3. | The expected interest rates for Kenya and United Kingdom are given as 6% and 4% respectively. |
| 4. | Quick Solutions Ltd. spent Ksh 6 billion to set up the business in Kenya. A UK business conglomerate has agreed to buy the business for Ksh.10 billion in 5 years. |
| 5. | The UK cost of capital is 15%. |
| Forex Bureau X | Forex Bureau Y | |||
| Bid/buy | Ask/sell | Bid/buy | Ask/sell | |
| Ksh | Ksh | Ksh | Ksh | |
| Tsh. quote | 0.8 | 0.9 | 0.10 | 0.11 |
| Debtors | Creditors | Amount | Currency |
| UK | SA | 1,236,000 | SA Rand |
| UK | FR | 494,400 | Euro |
| FR | SA | 824,000 | SA Rand |
| SA | UK | 76,220 | Sterling Pound |
| SA | FR | 386,250 | Euro |
| 1. | It is the company’s policy to net off inter-company balances to the greatest extent possible. |
| 2. | The central treasury is to use the following exchange rates for netting off purposes: US$ = SA Rand 6.4323/£0.7140/Euro 6.1740 |
| Spot rate | Dollars1.8250-Dollars 1.8361 |
| 3 months forward | Dollars1.8338-Dollars 1.8452 |
| Money market rates | Borrowing | Deposit |
| US Dollars | 5.1% | 4.2% |
| Sterling | 5.75% | 4.5% |
| 1 | No forward rate exists for 24 months' time. |
| 2 | Market information between Kenya and South Africa: |
| South Africa | Kenya | ||
| Annual inflation rates | 6% | 8% | |
| Annual interest rates available to the manufacturing firm: | |||
| Borrowing rate | 12% | 18% | |
| Investment rate | 8% | 6% |
| Annual lending rate | Annual borrowing rate | |
| US dollars (USD) | 8.0% | 8.3% |
| Mexican Peso (MXР) | 8.5% | 8.7% |