STRATEGIC BUSINESS MANAGEMENT

Time allowed: 3:30 hours

Total marks: 100
[N. B.: – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of
the quality of language and of the manner in which the answers are presented. Different parts, if any, of the same
question must be answered in one place in order of sequence.]
Marks
1. (a) NTC is a plantation company listed on the Dhaka Stock Exchange. The company has experienced
a downward trend in its financial performance, mainly due to the declining tea price in the world
market. During the financial year 2018/19, the company produced 5 million kilograms of tea.
80% of the tea was sold as bulk at the auction for an average price of USD 2.95 per kg. The
remainder of the tea was blended with clove and other herbs, and packaged as a value added tea,
which fetches a 30% premium on the average auction price. The gross profit margin on the export
of bulk tea is around 15%, whereas the gross profit margin on value added tea is around 25%.
Marketing and distribution overheads amount to 3% of total turnover. Administration and general
overheads amount to Tk. 70 million. The company has a debt of USD 5 million, which attracts
interest at 5% per annum. This loan was taken to invest in new value added packaging machinery
that will be depreciated for 6 years, based on its economic life cycle. Other than plant and
machinery, the company has no other depreciable assets. The buildings have been fully
depreciated during the financial year 2015/16. Plantation companies are taxed at 10%. The stated
capital of the company is Tk. 1 billion, where the investors expect a minimum return of 5% risk
premium over the Treasury bill yields. Currently the Treasury bill yields around 9.5% per annum.
The beta (β) factor is 1. USD was trading around Tk. 86 during the financial year 2018/19.
Requirements:
i) Discuss how corporates could create strategic value to its stakeholders. 4
ii) Discuss conflicting situations that could arise when corporates implement “value
creation” in their organisations, and how such issues could be mitigated. 4
iii) Evaluate whether NTC has created economic value to its shareholders during the
financial year 2018/19. 6

(b) The coronavirus pandemic is already having a devastating impact on the economy with numerous
sectors being shunned, with revenue loss, salary cuts, job loss and so many more. The restaurant
industry is no exception.
Although the whole restaurant market of Bangladesh has been estimated at BDT 4,500 crores in
the last year with an expected contribution of 2.1 percent to the country's GDP by 2021; a big
chunk of restaurant owners has been shuttered, with many expected to close down permanently.
Even the fast-food market that is estimated to be valued at Tk 450 crores alone, has been battered.
Even, the month of July witnessed a virtual press conference between Bangladesh Restaurant
Owners Association (BROA) members and media personnel, depicting the dire situation of the
‘ailing’ industry.
“Aadi Dhaka Limited” operates six restaurants in different areas of Dhaka in Bangladesh.
However, six restaurants operated by Aadi Dhaka are quite different in appearance and serve
menus that are quite different too. The prices varied greatly amongst restaurants: out of the six
restaurants two restaurants are near to two top private universities and surrounded by shopping
places are specialised in fast foods. These three fast food restaurants are known for prices, “the
cheapest in town”. One restaurant located middle of Dhaka – Chittagong highway, offers
conventional menus at average process. Two restaurants located in posh residential areas of the
Capital in Dhanmondi and Gulshan and offer “fine dining” and are quite expensive. Another
restaurant located inside Country’s top golf course, has a bar license, therefore, can serve alcohol
and only serves ala carte menu (having menu items priced separately). This restaurant is very
expensive and only serves members of the golf course.

Page 1 of 5
 Aadi Dhaka is a family owned restaurant chain and has been successfully operating restaurant
business for last 12 years and until last year all Aadi Dhaka restaurants were profitable, even
though some of the restaurants were showing declining business performance.

Business of Aadi Dhaka significantly worsened due to outbreak of COVID – 19 Pandemic in

2020. All Aadi Dhaka restaurants had to close dine-in options and running only takeaway
services, during end of March – End of September 2020. Aadi Dhaka had to pay salary and wages
to all staff and workers, rent, utilities and other fixed expenses even though there was hardly any
revenue from business for over six months.

During this trying time, third-party delivery apps, such as that of foodpanda, have been helping
to keep the restaurant industry alive by helping many local eateries from shutting down
permanently. However, Aadi Dhaka have not started using third party delivery services yet, for
any of its restaurants.

in the meantime, some of the restaurants in the city started opening dine-in options, from the
beginning of October 2020, as but they need to strictly maintain health and safety measures.

Aadi Dhaka Limited appointed a consultant to conduct a short assignment and to give them an
independent view of their business. After analysing business models of all the restaurants, the
consultant recommended as follows:
 Take immediate steps to increase revenue of all restaurants, to maintain business continuity;
 Examine the differences in operating models of Aadi Dhaka restaurants but did not suggest how.
The management of Aadi Dhaka reviewed that suggestions and responded that, the chain has grown
organically over a number of years and that the location, style and pricing decisions made in each
restaurant had all been made in different times and depended on trends current at that time.
Requirements:
i) Advise Aadi Dhaka Limited how it can minimise the impact of Covid - 19 on its business. 4
ii) Advise Aadi Dhaka how the application of “Porter’s Three Generic Strategic Model” could
assist them in improving the profitability of their restaurants (you are not required to
recommend individual generic strategies for each of the restaurants of Aadi Dhaka Limited). 7
iii) Discuss major limitations of “Porter’s Three Generic Strategic Model”, if any. 5

2. (a) Sultan Ltd and Sultana Ltd both manufacture and sell household equipment. The summarised
Income Statements of the two companies for the year 2018 are as follows:
Sultan Ltd Sultana Ltd
BDT’000 BDT’000
Revenue 37,500 20,000
Operating expenses (20,000) (15,500)
17,500 4,500
Each company has earned a constant level of profit for a number of years and both are expected
to continue to do so for the nearest future. The policy of both companies is to distribute all profits
as dividend to ordinary shareholders as they are earned. None of the companies has any fixed
interest capital. Details of the ordinary share capital of the companies are as follows:

Sultan Ltd Sultana Ltd

BDT’000 BDT’000
Share Capital:
Ordinary shares of Taka1 each
Authorised 125,000 50,000
Issued 50,000 25,000

Page 2 of 5
 The ordinary shares of Sultan Ltd have a current market value of Taka 3.50 each ex-div, and those
of Sultana Ltd a current market value of Taka 1.50 each ex-div. The directors of Sultan Ltd are
considering submitting a bid for the entire share capital of Sultana Ltd, they believe that if the bid
succeeds, the combined sales revenue of the two companies will increase by BDT 1,500,000 per
annum and savings in operating expenses amounting to BDT 1,250,000 per annum will be possible.
Part of the machinery presently owned by Sultan Ltd would no longer be required and could be
sold for BDT 2,500,000. Furthermore, the directors of Sultan Ltd believe that the takeover would
result in a reduction of the returns required by the Ordinary Shareholders to 10%.
Requirements:
i) As a financial consultant to Sultan Ltd, advise on the maximum price that the company
should be willing to pay for the entire share capital of Sultana Ltd. showing clearly the
basis of your advice. 4
ii) Show how the entire benefit from the takeover will accrue to the present shareholders
of Sultan Ltd. assuming that the takeover price is agreed at half of the figure you advised,
and that the purchase consideration will be settled by an exchange of ordinary shares in
Sultana Ltd. 4
iii) Discuss briefly any other factors that the directors and shareholders of both companies
might consider in assessing the acceptability of the proposed takeover. 4
iv) List the defense tactics that could be used by Sultana Ltd to frustrate the takeover bid of
Sultan Ltd. 4
(b) Cox Industries Limited deals in production and sales of electronic items in the domestic markets.
its expected sales revenues for the next 8 years (in million Taka) are furnished below:
Year Sales revenue in million Taka Year Sales revenue in million Taka
1 80 5 300
2 100 6 260
3 150 7 230
4 220 8 200
Its summary balance sheet as on June 30, current year is as follow:
Liabilities Taka in million Assets Taka in million
Equity 120 Current Assets 30
12% Debt 80 Long-term assets (net) 170
200 200
Additional information:
1. Its variable expenses will amount to 40% of sales revenue. Fixed cash operating costs are
estimated to be Taka 16 million per year for the first 4 years and at Taka 20 million for
years 5 – 8. In addition, an extensive advertisement campaign will be launched, requiring
annual outlays as follows:
In million Taka
1 5
2-3 15
4-6 30
7-8 10
2. Long-term assets are subject to 15% rate of depreciation on diminishing balance method.
3. The company has planned the following capital expenditure (assumed to have been
incurred in the beginning of each year) for the next 8 years.
Year In million Taka Year In million Taka
1 5 5 35
2 8 6 25
3 20 7 15
4 25 8 10
4. Working capital in terms of investment in current assets are estimated 20% of sales revenue.
5. It is expected to have non-operating assets in terms of investments in marketable securities
in the initial year. The expected after tax non-operating cash flow in year 1=0.50 million.
6. Given the tax benefits available to Cox Ltd, the effective tax rate estimated to 30%.
Page 3 of 5
 7. The cost of equity is estimated at 16 per cent.
8. The free cash flows of the firm are expected to grow at 5% per annum, after 8 years.
Requirements:
i) Calculate weighted average cost of capital of the firm; 2
ii) Calculate the depreciation from year 1 to 8; 3
iii) Calculate investment required (capital expenditure + current assets); 3
iv) Calculate the free cash flows from year 1 to 8 and total present value of the cash flows; 3
v) Calculate the present value of the free cash flows after the explicit period; 5
vi) Calculate total value of the firm based on the DCF technique; 2
vii) Calculate equity value of the firm. 2

3. (a) Globalisation has created more opportunities for money laundering with its associated risks,
which government and international bodies are trying to combat through legislations.
Requirements:
i) Explain the term money laundering and identify TWO major perpetrators. 2
ii) State the steps involved in assessing the risks associated with money laundering. 2
iii) State THREE necessary steps in curbing the spread of money laundering. 2
(b) In recent times, there has been rapid expansion in the use of Islamic finance globally. Identify
the major advantages of Islamic financing. 4

(c) Progressive group has recently acquired majority shares of Teesta Islami Life Insurance
Company Limited a life insurance company listed with Dhaka and Chittagong Stock Exchanges.
Share price of Teesta life was going down every year due to poor performance of the company
and non-declaration of dividend consequently.
A new board of directors with professional background and sector experience was in place after
the taking over. The new board of directors commissioned a review of corporate governance status
of the company and found instances of many financial irregularities due to absence of appropriate
internal control system in the company. The board resolved to initiate a thorough review of internal
control system of the company and appointed you as a consultant in this respect.
Requirements:
i) What sort of information would help the new board carry out an effective review of
internal control systems in Teesta Islami Life Insurance Company? 4
ii) What sort of employee attitudes would help or hinder an effective review of internal control? 4

4. (a) Paran Ltd is a listed regional company which manufactures and sells fruit juice. Last year, Paran
Ltd received criticism in the national press in Bangladesh and in other countries as a lot of
customers were hospitalized after purchasing some of its fruit juice which was contaminated.
This resulted in low patronage in its products and a huge fine by the Government. The Board of
the company believes in improving the relationships with groups such as suppliers, customers
and employees in order to regain its reputation. It has come out with the following corporate
social responsibility (CSR) in order to correct the shortfall in sales:
 Paying all bills of hospitalized customers and reducing of prices of the products for
customers.
 Sourcing high quality raw materials from suppliers and providing suppliers with capital
to produce more.
 Using efficient processes and motivating staff for them to give their best.
 Maintaining the highest standard of hygiene and complying with the standards issued by
the BSTI.
Requirement: Assess the significance of the CSR stance taken by the Board. 5

Page 4 of 5
(b) Supreme Power is a coal based power company which undertakes a wide range of power projects
around the world. Supreme has to work with many other organisations and governments agencies
in order to manage pollution and protection of the environment. Supremes’ mission statement
states that ‘The basis of our company is built on the values of conducting business in a socially
responsible and ethical manner. We respect the law, protect the environment and embark on
developmental projects in the community.’ Supremes’ values are included within its Ethical Code
of Conduct. Supreme places high emphasis on its ethical and sustainable business practices. It
involves employees, suppliers, and the members of local communities in which it operates in its
strategic management processes. All these stakeholders are fully trained by Supreme in the
Ethical Code of Conduct and they are expected to adhere to it.
Requirement: Discuss the importance to Supreme for incorporating business ethics and
sustainability into its strategic management activities. 5
(c) SOCCAR Bangladesh Limited, a private limited company registered in Bangladesh and a 100%
owned subsidiary of SOCCAR International a global company with business operation over 150
countries in the world. SOCCAR International is committed to being ‘a company that will trade
fairly and sustainable’.
Business of SOCCAR Bangladesh Limited is growing steadily since its establishment in 2013
and now pursuing an expansion strategy to respond growing demand, which has led the following
two situations occurring.
Situation 1
At a recent presentation to investment analysts and financial reporters, SOCCAR’s Chief
Executive Officer (CEO) presented an extremely optimistic forecast toe the company’s future,
suggesting that revenue would double over the next two years and profits and dividends would
increase by 60%.
However, the SOCCAR Bangladesh CEO had prepared his forecast in a hurry and had not had it
confirmed by anybody else within SOCCAR. The CEO did not mention that the government in
SOCCAR’s home country was considering taking legal actions against the company for
underpayment of Value Added Tax (VAT) and had made a claim for large damages. If this claim
were successful it would materially affect SOCCAR’s profit for the next year.
Situation 2
In another situation, Department of Patents, Designs and Trademarks (DPDT) of Bangladesh has
obtained a court order from the Supreme Court of Bangladesh, that all documents relating to
SOCCAR’s Patent registration in its home country should be made available to the Supreme
Court of Bangladesh for review.
However, many of the documents covered by the court order were the subject of confidentiality
agreements between SOCCAR and various entrepreneurs. These documents included details of
patents and processes with high commercial value and if knowledge of these became public it
would destroy some of SOCCAR’s competitive advantage.

Requirement: Considering both situations in turn, advise whether the situations are in conflict
with IFAC’s Code of Ethics, adopted by ICAB for its members. 6

---The End---

Page 5 of 5