$$

QUESTION ONE

a$)$ Briefly explain how the dividend policy and changes in financial leverage of a company influences the size and volatility of free cash flow to the firm

b$)$ List and discuss five characteristics of a good valuation exercise

c$)$ As a student, assume that you are analyzing the financial statements of a Kenya limited$,$ company in the manufacturing sector. Assume that you are in a team that is attempting to estimate the intrinsic value of the company. Presented below are the summarized statement of financial position and income statement for $2022($actual$)$ and $2023($forecasted$).$

STATEMENT OF FINANCIAL POSITION $-$ Kenya Limited

$\backslash$table$[[,2024$ Forecast,$2023$ Actual$],[,$Sh'Millions,Sh'Millions$],[$Cash$,7,5],[$Investment in Marketable Securities,$8,5],[$Accounts Receivable,$10,15],[$Inventory$,40,30],[$Current assets,$65,55],[$Property$,$ Plant, and Equipment,$430,300],[$Accumulated depreciation,$(185),(135)],[245,165],[$TOTAL ASSETS,$310,220],[$Trade payable,$15,30],[$Accruals$,4,4],[$Short$-$term debt $($interest bearing$),25,10],[$Current liabilities,$44,44],[10\%$ Long$-$term debt,$130,95],[$Ordinary Share Capital,$50,50],[$Retained earnings,$86,31],[$Total Capital & Long$-$Term Debt,$266,176],[$Total liabilities &owners' equity,$310,220]]$

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INCOME STATEMENT $-$ Kenya Limited

$\backslash$table$[[,2024$ Forecast,$2023$ Actual$],[$Sh$\text{'}$ Millions,Sh$\text{'}$ Millions,$],[$Revenue$,450,350],[$Cost of Sales,$200,100],[$Gross profit,$250,250$