Q1 A) Discuss the Frame work for capital investment process.

IDENTIFICATION

EVALUATION

SELECTION

IMPLEMENTAION

Identification deals with finding out the possible opportunities which is variable for it to be established so as to generate investment proposal. Evaluation- after the investment proposal has been accepted you then estimate relevant cash flow analysis for the project in the view of appropriate discount rate faster available. Selection- decision is made to accept best investment proposal with all possible factors that will affect the variability of the projects considered. Implementation- the investment made need to produce the dividend so the project is monitored to ensure it targeted goals are achieved with in the period.

B. Explain two methods of assessing capital budgeting non-discounted cash flow method. 1) Payback Period (PBP) which is the time period required to cover the original investment cost through actual cash savings (in flows and this is good for project with shortest payback period.

Q2 A) Explain the net present value of an investment. Explain mathematically. NPV0 = CF0 + CF1/(1+R)1 Where NPV is Net Present Value CF = Cashflow

(1+r) = Interest rate

B) A&B Construction has a microprocessor plant costing $400 million. Cash flow will increase by $10 million in a year from $100 million in the first year to $140 million in five years. At the end of 5 years the plant will be obsolete and have no value. What are the plants NPV if A&B required rate of return is 12%. II) Discounted Cash flow method eg. Internal Rate of Return - where the discount rate is not fixed and is varied till the net present value becomes zero. The discount rate at which the net present value becomes zero is the internall rate of return. 1C) A portal crane for a construction site has the following data: the cost of a machine $500,000 and its expected useful is 4years with expected total income of $200,000. Estimate the expected rate of return. Present cost = $500,000 Future cost = $ 200,000 Years to use = 4 L = (FV/PV)1/n 1 = (200000/500000)1/4 1 = (0.4)1/4 1 = 0.795 1 = -0.205 = -20.5%

Q2 C) 400000000 FV1/(1+L)1 + FV2/(1+L)2 + FV3/(1+L)3 - 10000000/(1+0.12)1 + 10000000/(1+0.12)2 + 140000000/(1+0.12)3 -10000000.12 + 69444444.44 + 54687500.00 -134131944.60 NPV = 400000000 134131944.60

= $265868055.40 The IRR = NPV/Initial cost capital = 265868055.40/400000000.00 = 0.665 = 66.50 = 67% Then IRR = 0.67 x 400000000 = $268000000.00 Since NPV = 265868055.40 and IRR = 268000000.00 Then since IRR is close to NPV which has value which make NPV to zero then the project variable.

Q3. Explain the impact of Cognitive Capitalism in a national economy. The impact of Cognitive Capitalism is a modern economics helps the country to create wealth among its cities and the nation at large. The Cognitive Capitalism place emphasis on human investment. Thus the nation becomes more productive because people are trained to acquire technological skills, raise their IQ have efficient administration, independent institution and economic freedom. This boost the production level (GDP) of the nation. This also helps the country to reduce expertise employment in executing projects since the human resources can be wealthy source thus no spending is done to the country foreign exchange resource. B) There are several causes to economic growth rates, low productivity and poverty in our society today isolate and discuss the factors and how they relatively affect our society. The factors that affect our society today in relation to low productivity and poverty in economic growth are: 1) The resource base of the country (land labour, capital, entrepreneurship and management) and countries with more of these resources have greater potential to produce high national output then those with smaller amount of such factors

which inturns helps to reproduce more for the country and increase work and reduce poverty since high production rate also give high GDP. Moreso since there is high production and GDP the citizens in the society turn to cultivate habit of savings and investment which helps the country to accumulate capital to increase its output overtime. This helps to increase growth to xxxx production and poverty. However for low productivity and poverty to reduce there should be the need to develop human capital thus training to acquire skills and education tends to increase production and reduce poverty. Also there is the need to discover new and strategic resources. These helps the country to increase its natural resource base of the economy and enhance potential to grow. This helps to contribute to the rapid GNP growth as well as growth in GNP/Capital. However exploitation of such basic resources must also create increase of non natural income resource base such as equipment, structures educated labour force and technological progress. An introduction to new technology also increase in production and reduces poverty since new way of doing things will bring faster production rate, changes the quality of man made capital and allow increase in output per time period. For any country to overcome low productivity and poverty levels there is the need to save and invest in both human and non human resources to enable the country to grow faster to help the society overcome problems associated with low productivity and poverty. Q4. A) Discuss two practical methods of property valuation. 1. The comparative method and residual method. The comparative methods deal with a valuation of a property by direct comparison with prices paid for other properties in the open market. This may be reliable only when the properties are similar physically (variations to size, shape and condition), located in the same area, legal interest is similar and the transactions are fairly recent and the market property is stable. 2. Residual method - this is used when property has development or redevelopment potential. It is needed when there is an element of latent value which can be released by the expenditure. The use of residual method involves considerable skills and it is first necessary to decide which is the best form of development suitable site or property, the value of the completed development is sometimes referred to as Gross Development value. This method depends upon

making an estimate of the value of the land when development or improved and deducting from this, the cost of construction and the site works, professional fees, legal, estate agency and advertising fees, interest on capital, contingencies and developers profit. B) Explain changes in property values. The values of property changes overtime for their increase or decrease in value of the property. The increase in property values resulting from and increase in real national income per capital, the effect of increase in the value of adjacent of the development or from inflation. The increase demand from relatively fixed supply of property often causes value to rise at a greater rate than the increase in the general level of pricing. There are also these factors that can cause increase in property and these are: Improved location General level of prosperity Population changes Technological change Physical characteristics and improved accessibility.

While for the decrease in property implies falling values due to economic recession which might only be marked by slowing down in the rate of inflation rather than a decrease in the general price level. The following can also cause decrease in property value and these are: Planning blight (new road/rail network) Migration Fears of impending disasters Slum formation Wear out Out dated design

C) Discuss two methods of project financing. The two project financing are Equity Capital and - Debt Capital (borrowed capital) Equity Capital is a means of providing assets to serve as a cushion at times when the business conditions are unfavorable leading to operational difficulties to secure a financial means of running a business. Equity does not enforce impose any such obligation of repayment of principal and payment of interest. Debt Capital also is a means of borrowed capital to run a business. This enforces upon the organization an obligation for repayment of both principal and payment of interest.

Interest paid on debt capital is a deductable item of expenditure from the profit earned by the organization for arriving at the tax payable by the organization on its earnings.

5) What are the effect on market rate increase? When there is an increase in market rate there is also likely increase in interest rates because bond investors believe that inflation will occur. Also the investors fear that when their bond investment matures they will be repaid with money of significantly less purchasing power. B) Explain briefly bond markets and commodities. In financial market stocks are shares of ownership of a public cooperation which are sold to investors to allow companies to raise a lot of cash at once. The investors get dividend from his investment when the company profit increases and bond markets generally refer to stock which are of different types teasing bonds and municipal bonds. Bond provide money in the form of liquidity that keep the organization running in good standing. Commodities if the material in which the stock has been priced (example oil). C) Discuss the following: i) Competitive advantage is the tool which an organization uses to create wealth which then produces a stream of profit to further nourish the resources base. The competitive advantage of any firm is the ability to come up with new product development capabilities and marketing capabilities within an appropriate strategy to always be ahead of it competitors. ii) Environmental scanning is the means at which an organization employs to establish the sustainability of the business with the type of the product to have easily petronalisation to the market and be able to sustain its production over a period of time. iii) Resources and Resources Capabilities Resources are the individual asserts of firm items of capital equipment, employee skills, patents, board names which is at the disposal of the company to make maximum use of it and the capabilities is what can be done to achieve production task. 6) An amount of $1500.00 is deposited in a bank paying an annual interest rate of 4.3% compounded quarterly. Find the balance after 6yrs. Given P = 1500 = r 4.3/100 = 0.043 n = 4 and t= 6 ; A = 1500 (1+0.043/4)4x6

= $1938.84 Balance after 6years is = $1939.00 approximately B) How long would it take a for a given amount of money to triple itself at 15% p.a compounded interest. Let Pv = 2000 Fv = 6000 L = 0.15 n = log(Fv) log(Fv) log(1+L) = log(6000) log(2000) 0.06069 = 0.477 0.6069 = 7.85 = 8years -