What is more valuable – (a) Taka 1,50,000 per year for ever or (b) An annuity of Taka 2,80,000 for 4 y

(a) here, it's mentioned 1,50,000 forever. So it will be perpetuity

CF 150,000
Rate 0.20
PV 750,000.00

(b)here,
PMT 280000
nper 4
rate 0.20
PV $724,845.68

So, Option A(Taka 1,50,000 per year forever) is more valuable than an annuity of taka 2,80,000 for 4 years.
nuity of Taka 2,80,000 for 4 years? Annual rate is 20 percent.

00 for 4 years.
 You are thinking of buying a luxury car and it costs Tk 28,00,000. The car dealer offers an amortizatio
a. What is your annual payment?
b. Build an amortization table? Circle the amount due at the end of the third year.

a. Car Cost 2,800,000

Paid 300,000
PV 2,500,000
N 5
Rate 0.1450
PMT 736,979.37

So, the annual payment is 736,979.37 taka.

b) year Beginning balance pmt interest

1 2,500,000.00 736,979.37 362,500.00
2 2,125,520.63 736,979.37 308,200.49
3 1,696,741.75 736,979.37 246,027.55
4 1,205,789.94 736,979.37 174,839.54
5 643,650.11 736,979.37 93,329.27
er offers an amortization program where you will pay Tk 3,00,000 up front and pay the rest in 5 equal annual installme

principal end balance

374,479.37 2,125,520.63
428,778.88 1,696,741.75
490,951.82 1,205,789.94
562,139.83 643,650.11
643,650.10 0.00
qual annual installments. The rate will be 14.5 percent.
 . Introcorp Limited has a target capital structure of 40 percent debt and 60 percent equity. Current

a) Determine the cost of retained earnings, k e.

b) What is the WACC?
c) Assuming a flotation cost of 20% and new issue price of Tk 400 per share, what is th
d) Assuming the company has 65 lac shares outstanding, what is the break point? How much debt

Debt perce 40%

Equity per 60%
ROE 25%
Current sh 450
Dividend p 60%
EPS of lat 80
Cost of de 16%
Marginal t 40%
Growth rat 10.00%
Expected 40.00

a) Given, Market Price,P

450 0
EPS 80
Expected Dividend,
40D1(50% of EPS)
ROE 25%
Payout Rat 60%
Growth(g) 10.00%
Cost of retained Earnings, ke
((D1/P0)+g)
Ke 18.89%

Investors will want atleast 18.89% return on using retained earnings for the growth and expansion of the com

b) Given, Wd 40%
We 60%
Kd=YTM 16%
Ke
18.89%
Ta 40%
WACC Wd*Kd*(1+t)+We*Ke
WACC 20.29%

It implies that, 20.29% of the return of the company must genarate to satisfy all suppliers of the capital.

C) floatation 20%
New share 400
 Cost of new issueance,
18.00% Ks
Marginal Co 14.64%

Here, Marginal Cost of Capital(MCC) is less than WACC. So, WACC will fall. If MCC was higher than the company m
and it is the marginal cost that needs to be satisfied in expansion and growth decisions, as well as funds manage

d) No of outs ###
Total earni ###
Retained ea1-dividend payout ratio
0.40
Available R ###
Break Poin ###
It shows that, the company can invest upto 346,666,666.67 without issuing new equity

Debt to ma ###
A debt of 208,000,000 is to be matched with an available retained earnings of 208,000,000
0 percent equity. Current share price in the market is Taka 450. EPS for the latest year is Taka 80 and 50 percent i

400 per share, what is the marginal cost of capital?

k point? How much debt is to be matched with available retained earnings?

wth and expansion of the company.

uppliers of the capital.

as higher than the company may attempted to raise an increasing amount of capital
ons, as well as funds managemant decisions.
Taka 80 and 50 percent is expected to be paid out as dividend. Firm’s usual ROE is 25 percent. The 60 % payout ra
cent. The 60 % payout ratio is normal for the company. The YTM on its bonds is 14 percent and its marginal tax rat
nt and its marginal tax rate is 40 percent.
 Determine the fair value of a stock when the following information is known.
Expected dividend: Cash 12.50. The required return is 28 percent and growth rate in dividend is 12 p

Answer:
Given, Expected Dividened D1 12.50
Required Return K ###
Growth Rate (g) ###

Fair value, P0 D1/(K-g)

78.13

The fair value of a stock is 78.13 taka.

rowth rate in dividend is 12 percent.
 Add 1 Product
Year return In decimal
1 2008 16.40% 0.0016 1.0016 1.0016
2 2009 27.45% 0.0027 1.0027 1.00439
3 2010 33.22% 0.0033 1.0033 1.007726
4 2011 -2.07% -0.0002 0.9998 1.007517
5 2012 21.22% 0.0021 1.0021 1.009655
6 2013 42.09% 0.0042 1.0042 1.013905
7 2014 55.34% 0.0055 1.0055 1.019516
8 2015 -7.77% -0.0008 0.9992 1.018724
9 2016 -10.25% -0.0010 0.9990 1.01768
10 2017 11.88% 0.0012 1.0012 1.018889
Sum 187.51% Geometric Avg. 1.018889^(1/12))-1
Arithmetic average 187.51/10 Geometric Avg. 0.001561
18.75
 Year return K Deviations
1 2008 16.40% 16.4 16.40 268.96
2 2009 27.45% 27.45 27.45 753.50
3 2010 33.22% 33.22 33.22 1103.57
4 2011 -2.07% -2.07 -2.07 4.28
5 2012 21.22% 21.22 21.22 450.29
6 2013 42.09% 42.09 42.09 1771.57
7 2014 55.34% 55.34 55.34 3062.52
8 2015 -7.77% -7.77 -7.77 60.37
9 2016 -10.25% -10.25 -10.25 105.06
10 2017 11.88% 11.88 11.88 141.13
Sum 187.51 7721.26
Arithmetic average =187.51/10
18.751 Average Sq 857.92
Excel average 18.751 Standard D 29.29
 . (a) Identify which project is preferred, given the following information about the projects A and B.

Project Expected Standard Deviation

A 20% 32%
B 26% 38%

In addition to the values provided in the previous problem, the following information are provided:
Correlation between returns of A and B = -.75
(b) If you form a portfolio of two assets as paired above with 40% of assets invested in the first asset, what
(c) Comparing among single asset A, B, and the combination of A and B as stated above, what should a ra

Answer:
a) Since with the increase in the return, the risk also increased in the mentioned scenario, the preference of the g
the projects depends on the individual risk preference. Risk lovers will go for Project B which will give them hig
higher risk. But the risk averse people will choose Project B as most likely they will not be willing to take higher

B) Project A 0.20 0.32 0.4

Project B 0.26 0.38 0.6

Correlation Between A & B -0.75

Portfolio SD 15.68%

C) Expected Return= (WA*E(KA))+(WB*E(KB)) 23.60%

A rational investor should go for the combination of A&B instead of investing otherwise. Because, correlation b
We know, a negetive correlation brings ddown the risk i.e. standrad deviation.
In this case, the portfolio standard deviation is 15.68 which is less than both the projects A &B. Also the portfol
Consideer the low portfolio standard deviation and moderate portfolio return, a rational investor should choo
ut the projects A and B.

ion are provided:

sted in the first asset, what is the standard deviation of this portfolio?
ed above, what should a rational investor choose? Explain why.

cenario, the preference of the given scenario,

oject B which will give them higher return with
will not be willing to take higher risk for this return.

herwise. Because, correlation between A&B is negetive.

projects A &B. Also the portfolio return is 23.60 which is higher than A & slightly lower than B.
a rational investor should choose the portfolio over independent A and B.
 What is the value of a land that will generate Taka 1,00,000 per year for ev

Constant Flow 100,000

Rate 0.1425
PV ###

So the value of the land is 701754.39 taka.

a 1,00,000 per year for ever? The required return per year is 14.25 percent.
 If a contract is expected to generate the following net cash flows and the expected return is 1

Rate 0.16
Year 0 1 2 3 4 5
CF 26000 26000 28000 38000 45000
NPV ###

So, the present value of the contract is 1,02,086.59 Taka.

nd the expected return is 16 percent, what is the present value of the contract? Year 1 Taka 26,000, year 2 Taka 26,0
26,000, year 2 Taka 26,000, year 3 Taka 28,000, year 4 Taka 38,000, and year 5 Taka 45,000.
Scenario Return Probability
Highly Opti 64% 0.10
Optimistic 30% 0.20
Average 25% 0.35
Below aver 12% 0.20
Pessimistic -10% 0.15

answer: we need to find out the expected return and Standard Deviation
Squared Weighted
Scenario Return(Ki) ProbabilityKi*Pi Deviation Deviation Sq dev. *p
Highly Opti 64 0.10 6.4 64 4096.00 409.60
Optimistic 30 0.20 6 30 900.00 180.00
Average 25 0.35 8.75 25 625.00 218.75
Below aver 12 0.20 2.4 12 144.00 28.80
Pessimistic -10 0.15 -1.5 -10 100.00 15.00
22.05 varience 852.15
St. Deviati 29.19

So, Expected Return is 22.05 and Standard Deviation is 19.13