CPA › Advanced Financial Management › Pilot December 2021

CPA Advanced Financial Management – Pilot December 2021 Past Paper & Answers

Unit: Advanced Financial Management

10 Questions

Download Complete Period

Get all questions and answers for "Pilot December 2021" in a single PDF file

Join the community! 550+ students upgraded in the last 24 hours. Limited Discount Seats Available

Questions

Download CPA Advanced Financial Management Pilot December 2021 past paper with detailed answers and marking scheme. This paper is based on KASNEB examination standards and is ideal for revision and exam preparation.

Access the full paper online, download the PDF, or study offline. Each question includes step-by-step solutions to help you understand key concepts in Advanced Financial Management.

Other Advanced Financial Management Past Papers

1a
Mergers and acquisitions
​ ​ ​​GLD Building Group is contemplating a takeover of Diarim Enterprise Ltd., a manufacturer of earthmoving equipment. 

 The following information is available about the two companies.

GLD 
Diarim
Number of shares in issue 
6,000,000
4,000,000
Dividend per share   
Sh 0.30
Sh 0.90
Price per price 
Sh.8.91
Sh.3.20

Additional information. 
1. The cost of equity capital for both firms is 10%. 
2. From a level of Sh.0.06 per share 6 years ago, GLD’s dividends has grown to the current level of Sh. 0.09 per share. 
3. GLD’S management is confident that managerial synergies arising as a result of proposed takeover will enable them to increase Diarim Ltd’s past dividends growth rate by a further 1%. 
4. The merger will involve transactions cost of Sh.500000. 

Required: 
Based on the approximate dividend growth rate, estimate the post-acquisition value of Diarims Ltd. using the dividend growth model, and evaluate the value gain arising as a result of the takeover. 
Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
1b
Mergers and acquisitions
​(i) Discuss the main economic and financial justification advanced for mergers and acquisitions.

(ii) According to evidence, to what extent do the shareholders of the companies tend to benefit from such an activity? 

(iii) According to the evidence, to what extent do the managers of companies tend to benefit from such activity? 

(iv) Explain what are referred to as “managerial” motives for mergers and acquisitions (M&A).
Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
2
Portfolio theory and analysis
​ ​​ Arkard, an investment specialist has been entrusted with Sh.10 million by a collective investment scheme (unit trust) and instructed to invest the money optimally over a two-year period. Parts of the instruction are that: 

1. The funds be invested in one or more of four specified projects and the money market. 
2. The four projects are not divisible and cannot be postponed. 
3. The unit requires a return of 24% over the two years. 

The following are details of the investment in the projects and the money market.

Initial Cost
Sh.”000”
Return over 
two years
% 
 Expected Standard deviation 
 of returns over the two years
% 
Project 1(p1) 
6,000
22
  7
Project 2(p2) 
4,000
26
  9
Project 3(p3) 
6,000
28
15
Project 4(p4)
6,000
34
13
Money market (MM)
1,000 (minimum)
18
  5

The correlation coefficients of returns over the two years are as follows: 
Between 
Projects
Between projects 
&market portfolio
(MP)
Between projects 
and the money market
(mm)
Between money 
market and market 
portfolio
P1&p2=0.70 
p1&mp=0.68 
p1&mm=0.40 
MM&MP=0.4
P2&p3=0.0
p2&mp=0.65 
p2&mm=0.45 
P1&p3=0.62
p3&mp=0.75
p3&mm=0.55 
P1&p4=0.56 
p4&mp=0.88 
P2&p4=0.57 
P3&p4=0 

Over the two year period, the risk free rate is estimated to be 16%, the market portfolio return is 27% and the variance of the return on the market 100%. By analyzing the two assets portfolios: 

(a) Use the mean variance dominance rule to evaluate how Arkard should invest the Sh.10 million. 

(b) Determine the betas and required rates of return for the portfolios then use the capital assets pricing model to evaluate how Arkard should invest the Sh.10 million. 

(c) Examine four criticisms of the Modigliani and Miller (MM) hypothesis without taxes.     
Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
3
Advanced capital budgeting decision
​ ​ ​ ​​​​​An investor is considering introducing a new product code named super pad into the market. This would involve purchasing a plant costing Sh.300 million. Additional information:

1.
The plant has a useful life of five years and is to be depreciated on a straight line basis.
2.
The salvage value is nil. 
3.
Due to market uncertainties, the sale price, variable cost and sales volume of the super pad have been estimated stochastically as follows: 
Selling price
Variable Cost  
Sales Volume
Value Sh.
Probability
Value Sh.
Probability
Value units
Probability
30
0.20
10
0.20
  4 million 
0.20
40
0.60
20
0.50
  6 million 
0.50
50
0.20
30
0.30
  8 million 
0.30
4.
The company’s cost of capital is 12% and the corporate tax rate is 30%.                   

Required:
(a)
The expected net present value (NPV) of the new product using expected values for each variable.
(b)
The expected NPV by performing ten runs using the following random numbers for each variable.

Selling.price:...76..64..02..53..16..16..55..54..23..36
Variable.cost:..20..82..74..08..01..69..36..35..52..99
Sales.volume:.55..50..29..58..51..14..86..24..39..47

Required:
Determine the expected NPV as simulated.
(c)
The probability that this product will be a success.
(d)
Discuss the advantage (merits) and disadvantages (limitations) of simulation analysis.

Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
4a
Mergers and acquisitions
​Unbundling is the process of selling off incidental non-core businesses to release funds, to reduce gearing in order to allow management to concentrate on their chosen core business. 

In relation to corporate restructuring and reorganization, briefly explain the following forms of unbundling: 

(i) Management buyout (MBO).
 
(ii) Management buy in (MBI).
 
(iii) Spin off or demerger. 
 
(iv) Sell off or divestment.
Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
4b
Advanced capital budgeting decision
​ ​ ​​​​Rhinox LTD is planning to invest in an expansion plan. The company has estimated Sh.20 million as the initial investment for the expansion. 

The plan is expected to generate Sh.5 million annual after tax cash inflow for the next 5 years. Cost of capital is 10%. 

Required: 
(i) The NPV of the project.  
 
(ii) The value of the call option to delay if the risk free rate of return is 7% and standard deviation of returns is 30%.
Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
4c
Financial risk management
​​In relation to financial risk management, briefly explain four advantages of financial derivatives.
Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
5a
Financial risk management International financial management
​ ​​Alpha will receive US dollars 400,000 in 3 month’s time. The company treasurer has determined the following:   

 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%

The money market rates are annual rates. 

Required: 
Determine whether a forward contract hedge or a money market hedge should be undertaken. 

Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
5b
Real estate finance
​​Explain four advantages of investing in Real Estate Investment Trusts.
Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
5c
Contemporary issues and emerging trends
​​Explain the meaning of the term crypto currency and give an example.
Want to join the discussion?

Log in to post comments and interact with tutors.

Login to Comment
All Periods
April 2026
December 2025
August 2025
April 2025
December 2024
August 2024
April 2024
December 2023
August 2023
April 2023
December 2022
August 2022
April 2022
December 2021
Pilot December 2021
September 2021
May 2021
November 2020
November 2019
May 2019
November 2018
May 2018
November 2017
May 2017
November 2016
May 2016
November 2015
Pilot September 2015
Success!

Comment posted! We'll give you feedback soon.