EASTERN UNIVERSITY

FACULTY OF BUSINESS ADMINISTRATION

Final Examination
Semester: Summer 2020

Program: BBA Section: 1

Course Code: FIN 201 Course Title: Principles of Finance

Course Teacher: Mohammad Tasadduk Ali Miah

Full Marks: 30

Instructions& Information:

 Answer any Four questions .

 All questions carry equal marks
 Answer all parts of each question consecutively.
 Answer each question from a fresh sheet.

Q1. (a) If a person is asked to buy a share of a company where the dividend is expected 6 tk next
year and he is told that the growth rate is constant at 12% for the foreseeable future what will be
the price of the share if the required rate of return is 16%? 3

(b) What will be the price of the same share stated earlier if the growth rate is 0% and the
required return is same as 16%? 1.5

(c) A company has 150000 shares outstanding. The dividend which has already been announced
is 8tk per share. It is expected that the dividend will grow at a rate 9% for the first 5 years and a
rate of 6.25% thereafter. What will be the current market price of the share if the required rate of
return is 12%? 3
Q2. There are two assets where Mr. Billy wants to invest. Both of the assets can face three
situations those are best, moderate and worst. The returns for both the assets in these situations
are provided below

Situations Asset Glo Asset Zig

Best 23% 18%

Moderate 16% 13%

Worst -5% 2%

Find out the Covariance and correlation between the two assets including variance and standard
deviation. What does that covariance and correlation tells about the assets. 7.5

Q3. Here are some information related to two projects of the company with a cost of capital of
9%

Project 1: Initial Investment is 87000 tk and the cash flows for the next five years will be 13000
tk, 25000 tk, 32000tk, 17000tk and 43400 tk.

Project 2 : Initial investment is 87000 tk with cash inflows of 29700 tk, 25500tk, 21950tk,
40280tk and 45700 tk for the coming years.

Evaluate and Explain which project should be selected and why based on the three methods
below and Also include the limitations of the methods

(a) Pay Back Period 0.75

(b) IRR 3
(c) NPV 3
(d) Discounted Payback period 0.75
Q4 (a) If Susie wants to take a loan and is capable of paying back the loan in the 7 th year of
1789311 tk, what loan amount she can take the bank from now? The discount rate is 11%. 1.75

(b) If the government of Australia issues bond of 1000 Australian dollar and promised the
bondholder to pay an interest of 0.9% for indefinite period what is the current price or value of
this bond? 1.75

(c) Bobbe Ltd has issued 10000 bonds of 1000tk face value each. The company has promised to
pay a coupon of 7% for 18 years and the redeemable value of the bond is 1324tk. What is the
current price of the bond if the discount rate is 6%? 4

Q5. (a) What will be the return on equity for accompany where the risk free rate is 7%, market
risk premium is 11% and a beta coefficient is 0.76? 2.5

(b) What are the advantage and disadvantages of the following methods?

(1) Pay Back Period 1

(2) IRR 1
(3) NPV 1
(4) Discounted Payback period 1
(5) Profitability Index 1