QUESTION S ") "Since debt capital is cheaper than equity, companies should resort to one hundred percent use of debt to finance the investment" Discuss the limitations of the above financial policy QUESTION 6 a) What are the differences between an "operating lease" and a "finance lease" QUESTION 7 (a) Discuss the main factors which a company should consider when determining the appropriate mix of long-term and short-term debt in its capital structure. (b ). Malindi Leisure Industries is already highly geared by industry standards, but wishes to raise external capital to finance the development of a new beach resort. Outline the arguments for and against a rights issue by Malindi Leisure Industries. (c) Examine the relative merits of leasing versus hire purchase as a means of acquiring capital assets. QUESTION 8 (a) List and explain five factors that should be taken into account by a businessman in making the choice between financing by short-term and long-term source (b) Enumerate four advantages of convertible bonds from the point of view of the borrower. If you want your dreams to become true don't over-sleep. Unknown.FINANCIAL MARKETS REVIS 7) Distinguish between the terms "coin div" and "ex - div" as used in financial markets. JUNE 2009 QUESTION ONE, QUESTION 10 a) Explain the main factors behind the rapid development of capital markets in your country. VE A DECEMBER 2006 QUESTION SIX QUESTION 11 a ) Discuss the role of a capital markets authority in the development of a country's financial markets six QUEST ets QUESTION 12 a) Describe the benefits to a country of integrating its financial markets with those of other country. QUESTION 13 (b) a) Distinguish between primary and secondary securities market. b) "Despite the large investment in the stock exchange and the various government incentives, only a few companies are listed at the stock exchange of the three East Africa Countries", This was the opening remark by the guest speaker in a seminar whose theme was "Developing our capital market." Required: i) The advantage of being listed at the stock exchange. ii) Highlight four factors that may hinder companies from being listed at the stock exchange. QUESTION 14 a) Briefly explain how the "Dow theory " views the movement of the market prices of shares traded on a stock exchange b) Identify and briefly explain the factors that must be taken into account in the design and construction of a market index for shares c) Joseph Kimeu is trying to determine the value of Bidii Ltd's ordinary shares. The earnings growth rate over his planned six-year holding period is estimated to be 10% and the dividend payout ration in 60%. The ending price earnings (P/E) ration is expected to be 20 and the current earning per share are Sh. 4. The required rate of return for this share is 15%. Required Compute the market price of Bidii Lid's ordinary share QUESTION 15 b) Briefly describe the three forms of capital markets efficiency. are familiar with. Highlight four factors that may underlie the low rate of listing of companies in a stock exchange you QUESTION 16 (a) Highlight four advantages and disadvantages to a company of being listed on a stock exchange. (b) In relation to the stock exchange" Section 3 F.MVALUATION OF FINANCIAL ASSETS RE QUESTION 18 3) Utanisi Lid. is experiencing a period of rapid growth, Earnings and dividends are expected grow at the rate of 15% per annum during the next two years, 13% in the third year and i y constant rate of 6% per annum thereafter, The last dividend paid by the company was she jk The company's required rate of return is 12% Required: The value of the equity shares of the company today. The dividend yield and capital gains yield and total return for year I and year 2. b) Pentagon Lid. issued a 10 year bond two years ago. The bond has a coupon rate of 13% pet payable semi annually. Upon inaturity, it will be redeemed at sh. 102 for every Sh. 100 par. Required: The highest amount you can pay to acquire the bond today if the required rate of return is 14% DECEMBER 2010 QUESTION ONE B HAVE QUESTION 19 c) PDS Lts. is a medium sized company quoted on the stock exchange . The company's year end by December . The following data relate to the company's earnings per share(EPS) and dividend share (DPS)for the last five years. Year ended 31 December: 2009 2008 2007 2006 2005 EPS (Shs) 14.0 13.6 13.1 12.7 12.2 DPS (Shs) 8.2 8.1 7.9 7.8 7.7 If the current dividend policy is maintained the directors of PDS Ltd. expect that annual growth earnings and dividend will be the same as the average growth in earnings over the past four years PDS Ltd which is wholly equity financed is reluctant to obtain debt to finance its growth opportunities. The company is therefore considering a change in its dividend policy where 50% its earnings will be retained to finance identified projects which are estimated to have an average post tax return of 15% The company's cost of capital is 12% Required: The share of the company which might be expected by the market 1) If the company does not announce the change of dividend policy If the company announces the change in dividend policy DECEMBER 2010 QUESTION ONE Bar QUESTION 20 b) Ushindi Lid, has recently issued a sh. 1,000, 9 percent convertible bond. The bond can be converted into 9 ordinary shares at the end of the five years. The current market price of the sha Section 3 F.M