Q1. An investment company makes two types of loan: Industrial loan at 15% interest rate per year, and residential loan at 10% interest rate per year. The company can lend a maximum of Kshs. 10 million. For safety, the company has the policy of investing not more than 60% of the total amount in industrial loans and not more than 80% in residential loans. The company wishes to maximize interest income. Determine the amount that should be invested in each type of loan. Find the solution by the Simplex table method. (10 marks)

Q2. (a) What is your concept of the term “management”? Discuss (5marks)
(b) Discuss the importance of management as resource in modern society. (5marks)

Q3. Describe the basic structure of a decision model by listing the sequence of seven steps. Formulate a business problem and analyze it by applying these steps. (10 marks)

Q4. A man plans to buy two types of stocks: A and B. He finds that:
(a) The anticipated dividend per year on stock A is 60% and that on B is 2%
(b) The anticipated increase in market value in one year is £1 per pound invested in stock A and £2 per pound invested in stock B.
He wishes : 1. To have at least £300 dividend income each yea.
2. To have at least £10,000 increase on his investment in one year.
Use the graphic method to determine the minimum that he will spend on each type of stock. (10marks)

Q5. Suppose that a company has single product that currently sells for Kshs. 60, variable costs per unit are Kshs. 15 per cent of selling price, and fixed costs are Kshs. 27,000.
(a) Compute the breakeven level in terms of number of units and shilling sales.
(b) What would happen to those two breakeven levels if selling price should be increased to Kshs.75? If fixed costs could be reduced to Kshs.24, 000? If variable cost could be reduced to Kshs.12 per unit or 20 per cent of selling price/
(c) What are the limitations of the Break Even analysis in decision making? Discuss.
(10 marks in total)

Q6. Briefly discuss the following:-
(a) Risk aversion
(b) Interdisciplinary teamwork
(c) Marginal cost and marginal revenue
(d) Programmed decision
(e) Binding constraint (10marks in total)

Q7. Illustrate graphically, the following cases of the linear programming problem:
(a) Multiple optimal solutions
(b) Degenerate basic feasible solution
(c) The unbounded problem
(d) No feasible solution (10 marks in total)

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