Q1 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)
Q2. 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)
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