QUESTION ONE (40 marks)-Compulsory a) Using relevant examples, discuss the goals of a firm. (1 0marks) b) Lucas wishes to determine the future value at the end of five years of Ksh150,000 deposit made today into a bank paying a nominal rate of 15%. Find the future value of Lucas' deposit assuming that the interest rate is compounded; 1 Annually (3marks] il) Quarterly (4 marks) ili) Monthly (6marks) c) Capital Asset Pricing model is based on some unrealistic assumptions. Using relevant examples explain five such assumptions. (1 0marks) d) Discuss the constraints in the development of a venture capital market in Kenya. (7marks) QUESTION TWO (20 marks) a) A project has the following cash flows Year 2 3 4 5 Cash flow 400 300 80 0 600 1 Page The cost of the project is Ksh1800. Determine whether the project is acceptable if the cost of capital is 15% using internal rate of return (IRR] method. (1 0marks) bj Discuss five determinants of the amount of dividend a company should pay (1 0marks) QUESTION THREE a) Embakasi Itd is considering investing in two projects A and Beach costing Ksh 80 0,000 with 10% discount rate. The projects promise the following net cash flows; Year ProjectA Project B 1 520,0 00 120,0 00 2 450,0 00 30 0,0 00 3 320,0 00 450,0 00 4 150,0 00 60 0,0 00 5 70,000 750,0 00 6 80,00 0 BOO,0 00 Calculate the following for each project and advice the management on which project they should implement; 0 Payback period [4 marks] ii) Net Present Value (5marks] iii) Internal Rate of Return (6marks) b) Explain the reasons why the Accounting Rate of Return is not a good Capital budgeting technique. (5marks]