1. A company has equity of Tk 600 million costing 14% and debt of Tk 400 million with a pre-tax cost of 10%. The tax rate is 25%. What is the WACC?

A) 12.0%
B) 12.4%
C) 10.8%
D) 11.4%

Correct: D complex Weighted average cost of capital

After-tax cost of debt = 10% x 0.75 = 7.5%. WACC = (600 x 14% + 400 x 7.5%) / 1,000 = 11.4%. If you chose 12.4% you used the pre-tax cost of debt. If you chose 12.0% you took a simple average of 14% and 10%. If you chose 10.8% you took a simple average of 14% and 7.5%.

2. The risk-free rate is 4%, the market return is 10% and the equity beta is 1.3. What is the cost of equity under CAPM?

A) 11.8%
B) 13.0%
C) 7.8%
D) 17.0%

Correct: A difficult CAPM

Cost of equity = 4% + 1.3 x (10% - 4%) = 11.8%. If you chose 7.8% you gave only the beta-adjusted risk premium. If you chose 13.0% you multiplied beta by the market return. If you chose 17.0% you applied beta to the market return and added the risk-free rate.

3. A project costs Tk 500 million now and returns Tk 160 million a year for five years. The cost of capital is 10% (five-year annuity factor 3.791; four-year factor 3.170). What is the NPV?

A) Tk 300.0 million
B) Tk 106.6 million
C) Tk 606.6 million
D) Tk 7.2 million

Correct: B complex NPV

PV of inflows = 160 x 3.791 = 606.6. NPV = 606.6 - 500 = Tk 106.6 million. If you chose 300.0 you did not discount. If you chose 7.2 you used the four-year factor. If you chose 606.6 you did not deduct the outlay.

4. A share has just paid a dividend of Tk 12. Dividends are expected to grow by 5% a year and shareholders require 13%. What is the value of the share using the dividend growth model?

A) Tk 150.0
B) Tk 157.5
C) Tk 96.9
D) Tk 92.3

Correct: B difficult Dividend valuation model

Value = D0 x (1 + g) / (ke - g) = 12 x 1.05 / 0.08 = Tk 157.5. If you chose 150.0 you used the current dividend instead of next year's. If you chose 96.9 you divided by the cost of equity alone. If you chose 92.3 you ignored growth entirely.

5. A company's shares trade at Tk 100. It offers a 1-for-4 rights issue at Tk 80. What is the theoretical ex-rights price?

A) Tk 80
B) Tk 96
C) Tk 100
D) Tk 90

Correct: B complex Rights issue

Four existing shares worth 400 plus one new share at 80 give 480 for five shares, or Tk 96. If you chose 90 you averaged 100 and 80. If you chose 100 you assumed the price is unaffected. If you chose 80 you assumed the market price falls to the issue price.

6. A loan carries a nominal rate of 12% a year, compounded quarterly. What is the effective annual rate?

A) 12.55%
B) 12.00%
C) 12.68%
D) 12.36%

Correct: A difficult Effective annual rate

EAR = (1 + 0.12/4)^4 - 1 = 1.03^4 - 1 = 12.55%. If you chose 12.00% you ignored compounding. If you chose 12.36% you compounded half-yearly. If you chose 12.68% you compounded monthly.

7. Which TWO are advantages of debt finance over equity finance? (Select TWO.)

Multiple response
A) No obligation to pay a return in a loss-making year
B) Interest is normally tax-deductible
C) Debt increases financial risk
D) Existing shareholders' control is not diluted
E) Debt reduces gearing

Correct: B, D difficult Debt finance

Interest relief lowers the effective cost, and lenders have no vote, so control is not diluted. Debt carries a fixed obligation, raises financial risk and increases gearing. If you chose A, C or E you reversed the effect.

8. Which TWO are advantages of NPV over the payback method? (Select TWO.)

Multiple response
A) It recognises the time value of money
B) It is easy to explain to non-financial managers
C) It emphasises early recovery of the outlay
D) It gives a percentage return directly
E) It uses all of the project's cash flows

Correct: A, E difficult NPV versus payback

NPV discounts cash flows and covers the whole project life. Ease of explanation and early recovery favour payback, and a percentage return is the output of IRR or ARR. If you chose B, C or D you picked payback or return-based features.

9. Which TWO actions would shorten receivables days? (Select TWO.)

Multiple response
A) Reducing follow-up of overdue accounts
B) Extending standard credit terms
C) Offering a discount for early settlement
D) Relaxing credit checks on new customers
E) Chasing overdue invoices promptly

Correct: C, E difficult Receivables management

Early-settlement discounts and prompt collection speed payment. The other actions lengthen collection times or increase bad-debt risk. If you chose A, B or D you chose actions that slow collection.

10. Which TWO factors favour a lower dividend payout ratio? (Select TWO.)

Multiple response
A) Stable cash flows and few investment opportunities
B) Shareholders rely on regular income
C) Projects available that earn more than the cost of equity
D) Loan covenants that restrict distributions
E) Ample cash and little debt

Correct: C, D difficult Dividend policy

Attractive investments and covenant limits both argue for retaining profit. The other factors support higher distributions. If you chose A, B or E you chose factors that favour paying out.

11. Consider investment appraisal. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Payback considers cash flows after the payback period.   No

2. The IRR is the rate at which NPV is zero.   Yes

3. NPV assumes cash flows are reinvested at the IRR.   No

4. A higher discount rate gives a lower discount factor.   Yes

Correct: N, Y, N, Y complex Investment appraisal

(1) No: payback ignores later flows. (2) Yes. (3) No: NPV assumes reinvestment at the cost of capital. (4) Yes.

12. Consider capital structure. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Higher gearing generally makes earnings per share more volatile.   Yes

2. Preference shares normally carry full voting rights.   No

3. Retained earnings are a cost-free source of finance.   No

4. Debt is normally cheaper than equity because lenders rank ahead of shareholders.   Yes

Correct: Y, N, N, Y difficult Gearing and cost of capital

(1) Yes: fixed interest magnifies changes. (2) No: preference shares normally have restricted voting rights. (3) No: retained earnings carry an opportunity cost, the shareholders' required return. (4) Yes: lower risk to lenders means a lower required return.

13. Consider sources of finance. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. A bank overdraft is suitable for permanent financing of non-current assets.   No

2. Factoring can provide immediate cash against receivables.   Yes

3. A finance lease normally leaves substantially all risks and rewards of ownership with the lessee.   Yes

Correct: N, Y, Y difficult Short-term finance

(1) No: overdrafts are repayable on demand and suit short-term needs. (2) Yes. (3) Yes: this is what distinguishes a finance lease from an operating lease.

14. A company's irredeemable bonds pay a coupon of 8% on a nominal value of Tk 100 and currently trade at Tk 80. The tax rate is 25%. What is the post-tax cost of debt?

A) 8.0%
B) 10.0%
C) 7.5%
D) 6.0%

Correct: C difficult Cost of debt

Post-tax cost of irredeemable debt = coupon x (1 - tax) / market value = 8 x 0.75 / 80 = 7.5%. If you chose 10.0% you ignored tax relief. If you chose 6.0% you divided the after-tax interest by nominal value. If you chose 8.0% you used the coupon rate.

15. A bond has a nominal value of Tk 100, pays an 8% annual coupon, is redeemed at par in three years and investors require a yield of 10%. Using the 10% annuity factor of 2.487 and discount factor of 0.751 for three years, what is the bond's value?

A) Tk 95.0
B) Tk 80.0
C) Tk 124.0
D) Tk 100.0

Correct: A complex Bond valuation

Value = 8 x 2.487 + 100 x 0.751 = 19.9 + 75.1 = Tk 95.0. A bond with a coupon below the required yield trades below par, so Tk 100 is wrong. Tk 80 treats the coupon as a perpetuity (8 / 0.10). Tk 124 adds undiscounted cash flows.

16. A supplier offers 1% discount for payment in 10 days instead of the normal 40 days. Using compound annualisation over a 365-day year, what is the approximate annual cost of forgoing the discount?

A) 36.5%
B) 13.0%
C) 12.3%
D) 1.0%

Correct: B complex Settlement discounts

Cost per period = 1 / 99 = 1.0101%. There are 365 / 30 periods in a year, so the annual cost = (1.010101)^(365/30) - 1 = 13.0%. If you chose 12.3% you annualised simply (1.0101% x 365 / 30). If you chose 1.0% you used the raw discount. If you chose 36.5% you annualised over the wrong number of days.

17. A company has annual credit sales of Tk 365 million and receivables of 60 days. A factor offers to reduce receivables to 30 days for a fee of 1.5% of sales, and the company will save administration costs of Tk 2 million a year. The company's cost of borrowing is 8%. What is the net annual cost of the factoring arrangement?

A) Tk 3.075 million
B) Tk 1.075 million
C) Tk 5.475 million
D) Tk 3.475 million

Correct: B complex Debt factoring

Fee = 1.5% x 365 = Tk 5.475 million. Interest saved = reduction of Tk 30 million in receivables x 8% = Tk 2.4 million. Administration saving = Tk 2 million. Net cost = 5.475 - 2.4 - 2.0 = Tk 1.075 million. If you chose 3.075 you omitted the administration saving. If you chose 5.475 you counted only the fee. If you chose 3.475 you omitted the interest saving.

18. A company announces a rights issue of one new share for every five held at Tk 60. The cum-rights price is Tk 75. What is the theoretical value of a right attached to one existing share?

A) Tk 12.50
B) Tk 15.00
C) Tk 2.08
D) Tk 2.50

Correct: D complex Rights issue

TERP = (5 x 75 + 1 x 60) / 6 = Tk 72.50. The gain on each new share is 72.50 - 60 = Tk 12.50, which is shared by the five existing shares needed to buy it, so each existing share carries a right worth 12.50 / 5 = Tk 2.50. If you chose 12.50 you stopped at the value per new share. If you chose 15.00 you used the cum-rights price minus the issue price. If you chose 2.08 you divided by six.

19. A project costs Tk 300 million and returns Tk 120 million a year for three years. At 8% the NPV is +Tk 9.24 million and at 12% it is -Tk 11.76 million. What is the IRR by linear interpolation?

A) 10.2%
B) 10.0%
C) 9.2%
D) 9.8%

Correct: D complex Internal rate of return

IRR = 8% + [9.24 / (9.24 + 11.76)] x (12% - 8%) = 8% + 0.44 x 4% = 9.8%. If you chose 10.0% you took the midpoint. If you chose 10.2% you reversed the NPVs in the formula. If you chose 9.2% you added the NPV to the lower rate without scaling it.

20. Which THREE are money market instruments? (Select THREE.)

Multiple response
A) Ordinary shares
B) Treasury bills
C) Twenty-year corporate bonds
D) Commercial paper
E) Convertible preference shares
F) Certificates of deposit

Correct: B, D, F difficult Money market instruments

The money market deals in short-term wholesale instruments: Treasury bills, commercial paper (unsecured notes of large companies) and certificates of deposit. Shares and long-dated bonds are capital market securities.

21. Which TWO are advantages of a company obtaining a listing on the Dhaka Stock Exchange main board? (Select TWO.)

Multiple response
A) Lower regulatory and reporting costs
B) Founders keep absolute control of the business
C) Access to a wider pool of capital
D) Greater marketability of shares
E) Freedom from the Bangladesh Securities and Exchange Commission's disclosure rules

Correct: C, D difficult Advantages of listing

Listing widens the investor base and makes shares easier to buy and sell. Listing increases regulatory and reporting burdens, dilutes founder control and brings BSEC disclosure obligations.

22. Which TWO methods reduce the credit risk of an exporter selling to an overseas buyer? (Select TWO.)

Multiple response
A) Open account terms of 120 days
B) Shipping goods on consignment
C) Invoicing in the buyer's currency
D) A letter of credit arranged before the sale
E) A bill of exchange accepted by the buyer's bank

Correct: D, E difficult Reducing credit risk in exporting

A letter of credit and a bill of exchange accepted by the buyer's bank put a bank's payment obligation behind the sale. Open account terms and consignment increase the exposure. Invoicing in the buyer's currency transfers exchange-rate risk to the exporter, not credit risk.

23. A Bangladeshi manufacturer plans to issue a green bond. Which TWO uses of proceeds would fit the environmental objectives recognised in the Green Bond Principles? (Select TWO.)

Multiple response
A) Installing rooftop solar panels at its factories
B) Refurbishing the head office carpets
C) Paying a special dividend to shareholders
D) Upgrading the effluent treatment plant to prevent pollution
E) Buying petrol vehicles for executives

Correct: A, D difficult Green bonds

The principles recognise climate change mitigation and pollution prevention and control, which solar panels and effluent treatment serve. Carpets, dividends and executive vehicles are not eligible green projects.

24. Consider preference shares. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. The dividend on preference shares is guaranteed even if profits are insufficient.   No

2. Most preference shares are cumulative, so arrears must be paid before equity dividends.   Yes

3. Preference shares usually share in excess profits.   No

4. Preference shares usually carry no voting rights.   Yes

5. Preference shares can raise capital without adding debt or diluting the control of ordinary shareholders.   Yes

Correct: N, Y, N, Y, Y difficult Preference shares

(1) No: the dividend is fixed but not guaranteed. (2) Yes. (3) No: they usually have no right to share in excess profits. (4) Yes. (5) Yes.

25. Consider overdrafts, loan stock and factoring. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. An overdraft is repayable on demand and interest is charged on the amount outstanding.   Yes

2. Interest on loan stock is normally a tax-deductible expense.   Yes

3. Under non-recourse factoring the client bears the risk of bad debts.   No

4. A factor can provide finance by advancing a percentage of the value of invoices.   Yes

5. Debt finance generally has a higher cost than equity finance for the same company.   No

Correct: Y, Y, N, Y, N difficult Short-term and debt finance

(1) Yes. (2) Yes. (3) No: the factor bears the risk when factoring is without recourse. (4) Yes. (5) No: debt is generally cheaper than equity because it has lower risk for investors and the interest is tax-deductible.