Suppose a firm maintains its preferred debt-equity and pays dividends only after meeting its investment needs, what type of dividend policy is being referred to?

A. Stable

B. Hybrid

C. Compromise D. Residual

2. What term describes a transaction where a firm buys some of its outstanding shares?

A. Stock payout

B. ShareReversal C. Sharerepurchase D. Distribution

3. Which of this is not consider in the calculation of the required rate of return using the CAPM?

A. Earning for next period

B. Risk free rate

C. Market return expected for the time period

D. Beta for the firm

4. Alomo Ltd has cash of GHS 100,000 that will be invested in an equity investment that has a beta of 2.25. The current risk-free rate in the market is 2.5%, and the market requires an 8% risk premium for equity securities. What the return Alomo Ltd. should expect to earn?

A. GHS 8,000 B. GHS18,000 C. GHS23,625 D. GHS 20,500

5. The principal -agent problem emerges under which of the following circumstances?

A. When ownership is separated from control

B. At least one member of the Directors dont attend meetings

C. When Board of Directors are set-up to control management activities

D. When ownership is not separated from control

6. Which of this source of financing in an organization do not carry the payment of interest?

A. Preferred shares B. Long-termloans C. Overdraft

D. Ordinary shares

7. _____ is a mechanism for mitigating potential agency problems.

A. Tying income of managers to success of the firm

B. Directors defending top management

C. The straight voting method of electing the board of directors

D. None of the above

8. Shareholder wealth in a firm is represented by:

A. the market price per share of the firm's common stock.

B. the book value of the firm's assets less the book value of its liabilities.

C. the amount of salary paid to its employees.

D. the market price per share of the firms preference stock.

9. Choose which answer is NOT an advantage of a sole proprietorship.

A. A sole proprietorship can make all of the hiring decisions.

B. A sole proprietorship must consult with Government agencies to determine the

business location.

C. A sole proprietorship can make all of the marketing decisions.

D. None of the above

10. Which form of business is highly likely to use Susu (personal savings) as a form of raising funds?

A. Company

B. Partnership C. Corporations

D. Sole proprietorship

11. Which of the following is NOT a fundamental function of a financial management?

A. Investment decision

B. Financing decision

C. Meagers and acquisition decision

D. Purchasing and supply decision

12. The central reason for the existence of Agency problem is....

A. Hidden action

B. Adverseselection C. Controlchallenges D. Ownership dispute

13. Which of the following is one of the causes of agency problem?

A. Information asymmetry B. Financialcontrol

C. Bankruptcy

D. Liquidity

14. Select the odd one among the following sources of finance

A. Debenture

B. IrredeemableBond C. Convertiblebond D. Equity

15. Which of the following is not a short-term source of finance?

A. Trade credit

B. Overdraft

C. Venturecapital D. Defer payments

16. Nashes limited is planning to be listed on the stock exchange, which of the following methods can the company use?

A. Initial public offer

B. Liquidation

C. Stock exchange monitoring

D. Market testing

17. Select the odd one out

A. Treasury bill market

B. Bond market

C. Equity market

D. Preference shares market

18. Which of the following financial instrument cannot be found on a money market

A. Overnight placement B. Repurchaseagreement C. Subrogation

D. Treasury bill

19. Identify a financial intermediary among the following

A. Insurance company

B. Shipping company

C. Clearing agent

D. Production company

20. Dividend can be paid using all of the following methods EXCEPT

A. script dividend B. sharerepurchases C. loan

D. cash

21. Which of the following is a series of constant cash flows that occur at the end of each period for some fixed number of periods?

A. Ordinary annuity

B. Annuity due

C. Perpetuity

D. None of the given options

22. Which of the following represents the future value of GHS5,555 invested at 12.5% per annum for 20 years?

A. GHS58,578 B. GHS6,758 C. GHS51,875 D. GHS60,258

23. Using the NPV criteria, a project should be selected when:

A. Its NPV is positive or zero.

B. Its NPV is equal to zero.

C. Its NPV is negative.

D. Its outflows are greater than its inflows.

24. Pecking order theory suggests which of the following?

A. Internal funds, debt, and external equity have the same risk-adjusted return.

B. Debt is preferred to external equity and internal funds.

C. External equity is preferred to debt which is preferred to internal funds.

D. Internal capital is preferred to debt which is preferred to external funds.

25. Which of the following is NOT one of the qualities which makes debt attractive to firms?

A. The cost of debt is generally less than the cost of share capital and hence can lower the overall cost of capital for a firm.

B. Debt interest only gets paid when the company is making a profit.

C. It reduces the amount of corporate tax payable by firms by reducing the amount of

taxable profit.

D. The required return on debt is lower because, from the lender's point of view, debt

is less risky than equity.

26. Which of the following is NOT a defining quality of a bond?

A. Dividend yield.

B. Maturity.

C. Face value.

D. Coupon payment frequency.

27. What is the value of a 6% bond with annual coupons and face value equal to GHS1,000, if the current yield to maturity is 6%?

A. GHS1,089 B. GHS920 C. GHS1,200 D. GHS1,000

28. The difference between the return on a risky investment and that on a risk-free investment.

A. Risk Return

B. Risk Premium

C. Risk Factor

D. None of the above

29. Under which of the following market efficiency regimes would stock prices reflect historical information?

A. Weak market efficiency.

B. Semi-strong market efficiency. C. Strong form market efficiency. C. All three.

30. Systematic Risk is also known as:

A.Diversifiable Risk B.Market Risk C.Residual Risk D.Asset-specific Risk

SECTION B

Attempt only TWO (2) questions from this section

Question 1

a. Agbosome Electrical company currently pays an annual dividend of GHc 2 per share. Currently, the companys equity share or common stock has a market value of GHc 32.3 per share. If the annual dividends are expected to grow at 5% per year.

i. Compute the cost of the equity share or common share.

2 marks

b. Agbosome Electrical holds the following mix of funding sources each with a given cost except preference share as follow:

Capital components

Value Cost

50,000 6.25% 40,000 9.6% 90,000 ?

Debt Preference shares Ordinary shares

c.

d.

ii. Discuss any three advantages of debt financing over equity.

Consider the following hypothetical firms with their respective beta ABC MNO QRS XYZ

Beta 1 0 1.2 0.85

i. Which firm has the highest risk?

ii. Which firm is risk free?

iii. Which firms returns will be equal to the market returns?

3 marks 3 marks

1 mark 1 mark 1 mark

i. Using your answer in (i), calculate the weighted average cost of capital.

Suppose that the expected return on 182-Days Treasury bill is 15.2%, the expected return on the market is 15.75%, and the beta of Agbosome Electricals is 1.3.

Question 2

i. Compute the required rate of return?

ii. Would your answer in (v) change if beta changes to 1 and why?

2 marks [Total marks 15]

You are presented with the following summarized accounts for Kenyatta, a limited liability company.

Kenyatta

Statement of comprehensive income for the year ended 31 May 20X5

GHS'000 Revenue 320

Cost of sales (200) Gross profit 120 Distribution & administrative expenses (70) Profit Before Interest and Tax 50 Finance cost (10) Profit before tax 40 Tax expense (20)

Net profit for the period

Kenyatta

Statement of financial position as at 31 May 20X5

20

Assets

Non-current assets Current assets Inventory

Trade receivables Cash and bank

Total assets

Equity and liabilities Stated capital

Non-current liabilities

10% loan notes

Current liabilities

Trade payables Taxation

Total equity and liabilities

Required:

GHS'000 GHS'000 300

30

50

10 90

390

200 200

100

90

390

70 20

a. Calculate the following ratios for Kenyatta for the year ended 31 May 20X5. State clearly the formulae used for each ratio.

2 marks

i. ii. iii. iv. v. vi.

b.

Return on capital employed

Net profit percentage

Quick/acid test ratio

Receivables collection period (assume 365 days in a year) Trade Payable collection period (assume 365 days in a year) Interest cover

Question 3

Is the firm highly geared or lowered geared?

i. Discuss five functions of financial markets in any economy.

ii. With relevant examples differentiate between money market and capital market

iii. State and explain any three (3) capital structure theories.

[Total marks 15]