Question One (30 Marks)

a) Ngomongo Holdings Limited has investment interests in three companies. Kirinyaga Video Limited (KVL), Kilgoris Hauliers Limited (KHL) and Turkana Limited (TFL). The following financial data relate to these companies:

As at 31^st December 2013, the financial statements of two of the companies revealed the following information:

Company	Price of share	Earnings per share Kshs.	Dividends per share Kshs.
Kirinyaga Video Ltd	160	8	8
Kilgoris Hauliers(KHL)	270	18	9

Earnings and dividends information for Turkana Fisheries Ltd (TFL) for the past five years is given below:

Year ended 31st December	2009 Kshs.	2010 Kshs.	2011 Kshs.	2012 Kshs.	2013 Kshs.
Earnings per share	5.0	6.0	10.0	7.0	12.0
Dividend per share	3.0	3.0	5.0	3.5	5.5

The estimated return on equity before tax required by investors in Turkana Fisheries Ltds shares is 20%.

Required:

For Kirinyaga Video Ltd (KVL) and Kilgoris Hauliers Ltd (KHL) determine and compare:

Dividends yields. (3 Marks)

Price/earnings ratio (3 Marks)

Dividends covers (3 Marks)

Using the dividends growth model, determine the market value of 1,000 shares held in Turkana Fisheries Ltd (TFL) as at 31^st December 2001. (5 Marks)

b) Distinguish between financial risk and operating risk. (6 Marks)

c) Define the following term as used in financial management: (10 Mark)

Financial distress

Moral hazard

Adverse selection

Bonus issue

Stock split