PAF – Karachi Institute of Economics and Technology (City Campus)

Course: Introduction to Business Finance

Faculty: Ali Sajid
Class ID: 106537 Total Marks: 40
Examination: Final (SP-2021) – Online Date: 28 April 2021
Student Name: ID:

Calculation section
25 Marks

Question 1 (4 Marks)
Suzuki Motors has bonds outstanding with 9 years left until maturity. The bonds have a $1,000 par value and an 9.5
percent annual coupon. Currently, the bonds sell at a price of $1,120.
a. What is the annual coupon bond’s yield to maturity?
b. What will be the percentage increase in the annual coupon bond’s price if the yield to maturity were to
immediately fall by 100 basis points?

Question 2 (3 Marks)
Fazal Family recently entered into a 2-year mortgage for $350,000. The mortgage has 7 percent interest compounded
quarterly and all payments are due at the end of the period. What will be the remaining balance on the mortgage after 9
months?

Question 3 (4 Marks)
2. Today is December 31, 2019. The following information applies to Serene Air:
 Operating income for the year 2020 is expected to be $500 million.
 The company’s depreciation expense for the year 2020 is expected to be $50 million.
 The company’s capital expenditures for the year 2020 are expected to be $150 million.
 No change is expected in the company’s net operating working capital.
 The company’s free cash flow is expected to grow at a constant rate of 8 percent per year.
 The company’s cost of equity is 10 percent.
 The company’s WACC is 15 percent.
 The current market value of the company’s debt is $1.6 billion.
 The company currently has 120 million shares of stock outstanding.
 Applicable tax rate is 40%
Using the free cash flow valuation method, what should be Serene Air’s stock price today?
Question 3 (6 Marks)

Years ATLH INDU KSE 100

2014 500.00 880.32 32,161.28
2015 380.00 1,011.68 32,816.31
2016 375.00 1,614.53 47,806.97
2017 566.17 1,680.17 40,471.48
2018 584.12 1,219.68 37,066.67
2019 387.55 1,161.66 40,735.08
2020 335.75 1,197.96 43,755.38

a. What are the realized returns on ATLH, INDU and KSE100?

b. What are the betas of ATLH and INDU?
c. What are the required rates of return on ATLH, INDU & KSE 100 if risk free rate is 7.75%?
d. What is the required rate of return on a portfolio consisting of 60% of ATLH and 40% of INDU
e. Calculate the portfolio beta using weights given in part c.

Question 4 (8 Marks)
Case study
1. How has Ben & Jerry’s fulfilled its mission statement? What evidence can you provide regarding Ben & Jerry’s
performance on each of the three dimensions of the mission statement?
2. How did Ben & Jerry’s become a takeover target?
3. Do you think the current takeover offers are justifiable? What might Ben & Jerry’s be worth to the bidders?
4. Should Henry Morgan defend the agenda of the current management team or support one of the acquisition
offers?