Question one

1. Compare and contrast capital market and money market ( 2 marks)
2. Company Z is experiencing a period of rapid growth. The earnings and dividends are expected to grow at a rate of 18% during the next 2 years at 15% in the third year and then at constant rate of 6% thereafter. Dividend payment in year 3 is expected to be K1.15 per share and the required rate of return on the stock is 12%.

1. Calculate last dividend payment (current dividend) (2 marks)
2. Calculate the value of the stock today. (8 marks)

3. ABZ Corporation is considering the purchase of a copier that costs $5,000. Assume a cost of capital of 10% and the following cash flow schedule:

• Year 1: K3,000
• Year 2: K2,000
• Year 3: K2,000
  1. Determine the project's Payback Period (1 Mark)
  2. Determine the project's NPV (4 Marks)
  3. Determine the project's PI (3 Marks)

4. Discuss the following

1. What are the differences between premium bonds and discount bonds (3marks)
2. Discuss three limitations of capital asset pricing model (CAPM) (6 marks)
3. Differential between cost of capital and capital structure (4 marks)
4. Explain the internal sources of finance the manager should use when encountered with the unfavourable payment period (6 marks)