Free Fundamentals of Finance revision

1. Sukali limited plans to pay out dividend to its current shareholders from its cash reserves. How will the financial statements be affected by the company’s issue of the dividend?

2. (a)_________ refers to the total of cost of debt and cost of equity, whereas (b)_______is the weighted average of these costs derived as a proportion of debt and equity in the firm.

3. _________refers to when an underwriter makes the best efforts or good faith promise to the issuer to sell as much of their securities offerings as possible.

4. A central depository system (CDS) refers to a ______

5. A credit policy sets credit and payment terms for customers and establishes a clear course of action for late payment. A good credit policy ____________

6. Risk (a)______ investors refers to investors who see opportunity in the market volatility and risk a great deal in expectation of a high rate of return, Risk (b)_____investors refers to investors who prefer lower returns with known risks rather than higher returns with unknown risks & therefore stays away from high risk returns, and Risk(c) _______investors refers to investors who are insensitive to risk, therefore ignores the risk completely when making an investment decision.

7. An (a)______loan refers to type of loan with scheduled, periodic payments that are applied to both the loan's principal amount and the interest accrued,(b)_________refers to the value of a current asset at a future date based on an assumed rate of growth, while (c).__________refers to the current value of a future sum of money or stream of cash flows given a specified rate of return.

8. Capital budgeting techniques are classified into discounted cash flow techniques and non-discounted cash flow techniques. The discounted cash flow techniques include _____

9. Companies use dividend policies to structure their dividend payouts to their shareholders. There are several types of dividend policies. The (a)._________dividend policy under which a company pays out dividends to its shareholders every year,the (b)__________ dividend policy, where the percentage of profits paid out as dividends is fixed,the (c)_______ dividend policy, where the company is under no obligation to pay its shareholders and the board of directors can decide what to do with the profits ,and the (d)_______ dividend policy, under which the company doesn’t distribute dividends to shareholders.

10. Fedha company limited has on its books the following amounts and specific costs of each type of capital:

Required :Determine the weighted average cost of capital using
a. Book value weights
b. Market value weights

11. In reference to Islamic finance,(a)_______refers a form of trade credit for asset acquisition that avoids the payment of interest,(b)_______is a lease finance agreement whereby the bank buys an item for a customer and then leases it back over a specific period at an agreed amount,(c) _________refers to bank a form of equity finance in which the bank and the customer share any profits, and (d)_______is a joint venture or investment partnership between two parties, whereby both parties provide capital towards the financing of projects and share the profits in agreed proportions.

12. Fumela Maneno borrowed kshs 5 million from a Rafiki bank at the rate of 2.5% per month. The loan is to be repaid monthly over a period of 6 months. Interest on the loan is to be paid on a reducing balance basis.

Required:

Prepare a loan amortization schedule.

13. The NSSF promises a monthly 0.5% return if you deposit kshs 10,000 per month for 15 consecutive years. What amount will be accumulated after those 15 years?

14. TRUE OR FALSE: An investor doesn’t need to pay any tax upon receiving the bonus shares.

15. Under stock split, a company ___________