KASNEB Financial Management - Question 1c

Suppose the company in (b) above wants to raise additional Sh.50 million to finance an expansion programme as follows: 30% from retained earnings. 30% fr... [Click to view full question and step-by-step solution]

KASNEB Financial Management - Question 2c

Assume that you have just won a competition prize with the following options:Option A:Lumpsum payment of Sh.25.8 million in 5 years time.Option B:A sum of Sh.1... [Click to view full question and step-by-step solution]

KASNEB Financial Management - Question 3a

Distinguish between “cryptocurrency” and “block-chain technology”. ... [Click to view full question and step-by-step solution]

KASNEB Financial Management - Question 3b

Describe FOUR roles of financial intermediation in an economy. ... [Click to view full question and step-by-step solution]

KASNEB Financial Management - Question 3c

The following financial statement information relates to Kame Ltd. as at 30 June: 202320242025Sh.“000”Sh.“000”Sh.“000”Inventory195,000360,000195,000Trade... [Click to view full question and step-by-step solution]

KASNEB Financial Management - Question 5a

Summarise FOUR principles of Takaful as used in Islamic Finance. ... [Click to view full question and step-by-step solution]

KASNEB Financial Management - Question 5b

Describe FOUR disadvantages of listing a company at the securities exchange of your country. ... [Click to view full question and step-by-step solution]

KASNEB Financial Management - Question 5c

Discuss THREE forms of market efficiency in relation to efficient market hypothesis (EMH). ... [Click to view full question and step-by-step solution]

FM August 2025 Past Paper & PDF Solutions

1a

Overview of financial management The financing decision Introduction to capital structure decisions

(i) Explain FOUR functions of a finance manager in an organisation.

(ii) Highlight FOUR mechanisms that might be used to ensure that managers act in the best interest of the shareholders.

1b

Business/Financial asset Valuation models Introduction to capital structure decisions

Shabana Ltd. is intending to raise additional capital to finance a new project. The current market price per share (MPS) of the company is Sh.44 Cum-Div of the year 2024 declared but not yet paid. For the past six years, the company paid the following stream of dividends:

Year	2019	2020	2021	2022	2023	2024
Dividend per share (Sh.)	3.0	3.2	3.4	3.6	3.8	4.0

The existing capital structure of the firm is as follows:

	Sh."000"
Ordinary share capital (Sh.20 par value)	60,000
Reserves	20,000
14% debenture (Sh.100 par value)	30,000
10% preference share capital (Sh.30 each)	20,000
	130,000

Additional information:

1. The existing 14% debentures are currently selling at Sh.124 cum-interest.

2. The existing 10% preference shares are currently trading at Sh.25 each.

3. Corporation tax rate is 30%.

Required:

Compute the company’s existing overall weighted average cost of capital (WACC).

1c

Business/Financial asset Valuation models Introduction to capital structure decisions

Suppose the company in (b) above wants to raise additional Sh.50 million to finance an expansion programme as follows:

30% from retained earnings.
30% from the issue of new ordinary shares at Sh.40 each. A floatation cost of 2% of the issue price will be incurred and discount cost of Sh.3 per share issued will also be incurred.
40% of the additional funds will be raised from the issue of new 12% irredeemable debentures at current market value of Sh.110 each. The firm will incur Sh.10 floatation cost per unit issued.

Required:

(i) Compute the firm’s weighted marginal cost of capital (WMCC).

(ii) Compute the number of ordinary shares to be issued to raise the desired external equity capital.

2a

Working capital management

(i) Explain the term “overtrading” in relation to working capital management.

(ii) Identify THREE signs that could indicate that a firm is overtrading.

2b

Working capital management

Elimika Limited maintains a minimum cash balance of Sh.500,000. The firm’s standard deviation of its daily cash changes is Sh.200,000. In the current financial year, the annual interest rate is 14% and the transaction cost of buying and selling securities in the money market is Sh.150 per transaction.

Assume 365 days in a year.

Required:

Using Miller-Orr cash management model, determine: .

(i) The upper cash limit (H).

(ii) The average cash balance.

(iii) The return point (Z).

2c

Time-value of money

Assume that you have just won a competition prize with the following options:

Option A:	Lumpsum payment of Sh.25.8 million in 5 years time.
Option B:	A sum of Sh.16 million paid as follows: Sh.5 million payable today. Sh.5.5 million to be paid after one year Sh.5.5 million to be paid after 2 years.
Option C:	Annual payment of Sh.1.4 million for 30 years, the first payment being made at the end of the year.
Option D:	A perpetual payment of Sh.1.38 million.
Required: Assuming a required rate of return of 8%, advise on the payment option that you would select.

3a

Contemporary issues and emerging trends

Distinguish between “cryptocurrency” and “block-chain technology”.

3b

Financial institutions and markets

Describe FOUR roles of financial intermediation in an economy.

3c

Financial statements analysis and forecasting

The following financial statement information relates to Kame Ltd. as at 30 June:

	2023	2024	2025
	Sh.“000”	Sh.“000”	Sh.“000”
Inventory	195,000	360,000	195,000
Trade receivables	367,500	468,000	600,000
Cash	150,000	81,000	34,500
Current assets	\(\overline{712,500}\)	\(\overline{909,000}\)	\(\overline{972,000}\)
Current liabilities	300,000	450,000	675,000
	\(\overline{\underline{412,500}}\)	\(\overline{\underline{459,000}}\)	\(\overline{\underline{297,000}}\)

Additional information:		Sh.	Sh.
1		2024	2025
	Credit sales	2,250,000	2,295,000
	Cost of goods sold	1,680,000	1,800,000
2.	Assume 365 days in a year.

Required:

Assess Kame Limited’s liquidity position for the years ended 30 June 2024 and 30 June 2025:

(i) Inventory turnover time.

(ii) Average collection time.

(iii) Liquidity ratios (current ratio and Quick ratios).

4a

Dividend decision

Dividends can affect the price of the underlying securities in different ways. While dividend history of given shares plays a general role in its popularity, the declaration and payment of dividends also has a specific and predictable effect on share market prices.

Required:

Examine FOUR impacts of dividend payout on share prices.

4b

Business/Financial asset Valuation models

Mara Limited is a company quoted at the Securities Exchange and is experiencing a period of rapid growth. Due to this, a momentous growth of 15% per annum is anticipated during the next 5 years. Thereafter, a normal growth rate of 5% per annum is expected indefinitely. The shareholders of the company require a rate of return of 10% per annum on their investments. During the previous year, the company paid Sh.4 per share as dividends.

Required:

Advise an investor interested in Mara Limited on the maximum price to pay per share.

4c

Introduction to capital budgeting decisions

Talino Developers Ltd. is a manufacturer of bricks and concrete blocks. The company is considering replacing part of the current manual labour force by purchasing a small tractor with a forklift for use in loading bricks and concrete blocks. The purchase price of the tractor would be Sh.6,500,000. The tractor will have an economic useful life of 5 years but would require Sh.250,000 overhaul cost at the end of the third year. After 5 years, the tractor would be sold for Sh.1,500,000.

The company estimates that it will cost Sh.2,000,000 per year to operate the tractor. However, the company will save Sh.1,500,000 annually on labour cost. Due to increase in handling efficiency, losses caused by breakages will be cut by Sh.2,500,000 per year. Sales will also go up by Sh.5,000,000 per year. The increase in sales level is expected to be maintained throughout the tractor’s useful life.

The firm’s gross margin ratio is 40%, corporate tax rate is 30% and cost of capital is 12%. The firm provides for depreciation on a straight line basis.

Required:

Compute the net present value (NPV) of the project and advise on whether the tractor should be purchased.

5a

Islamic finance

Summarise FOUR principles of Takaful as used in Islamic Finance.

5b

Financial institutions and markets

Describe FOUR disadvantages of listing a company at the securities exchange of your country.

5c

Introduction to portfolio analysis

Discuss THREE forms of market efficiency in relation to efficient market hypothesis (EMH).

5d

Introduction to portfolio analysis

The Alliance Fund is a mutual fund that holds long-term positions in a small number of non-dividend paying stocks. The holdings at the end of two recent years are as follows:

	Year 2023		Year 2024
Stocks	Number of shares	Price (Sh.)	Number of shares	Price (Sh.)
A	20,000	45.25	20,000	48.75
B	45,000	25.38	45,000	24.75
C	75,000	14.50	75,000	12.38
D	23,000	87.13	23,000	98.50
E	30,800	56.50	30,800	62.50
F	35,000	63.00	35,000	77.00
G	42,400	32.00	42,400	38.63
H	55,000	15.25	55,000	8.75
I	90,000	9.63	90,000	27.45
J	18,000	71.25	18,000	75.38
K	17,400	42.13	17,400	49.63
L	27,400	19.88	0	27.88
M	0	17.75	30,000	19.75
		2023 Sh.		2024 Sh.
Cash		708,400		574,600
Expenses		146,000		166,000

At the end of each year, the Alliance Fund had 1,086,000 shares outstanding.

Required:

(i) The Net Asset Value (NAV) of a share of Alliance Fund at the end of year 2023 and year 2024 (including cash position in the total portfolio value).

(ii) The growth rate in the net asset value (NAV).

August 2025

Download Complete Period

Questions

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?