126. An exporter reviews methods to finance receivables. Which TWO are correct? (Select TWO.)

Multiple response
A) Invoice discounting can release cash against sales invoices
B) A letter of credit is arranged after goods are shipped
C) Forfaiting provides non-recourse finance against medium-term export receivables
D) Export credit insurance removes all commercial risk

Correct: A, C difficult Export finance

Forfaiting and invoice discounting finance receivables. LCs are arranged before shipment, and insurance does not remove all risk.

127. A family company considers listing. Which THREE are typical disadvantages? (Select THREE.)

Multiple response
A) Risk of takeover
B) Pressure from shareholders for short-term performance
C) Increased marketability of shares
D) Improved ability to raise capital
E) Greater regulatory and disclosure requirements

Correct: A, B, E difficult Listing

The last two are advantages.

128. A start-up is seeking venture capital. Which TWO are typical features? (Select TWO.)

Multiple response
A) Equity stake with a planned exit
B) Immediate repayment on demand
C) Involvement of the investor in strategy
D) Fixed interest payments secured on assets

Correct: A, C difficult Venture capital

VC is equity-based, involved, and seeks an exit.

129. A firm tightens credit control. Which THREE actions are effective? (Select THREE.)

Multiple response
A) Credit limits
B) Credit checks on new customers
C) Regular ageing analysis
D) Ignoring overdue accounts
E) Extending terms for all customers

Correct: A, B, C difficult Receivables management

Vetting, limits and monitoring are effective.

130. Consider discounted cash flow concepts. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. NPV is the sum of discounted cash flows less the initial outlay.   Yes

2. The IRR is the rate at which NPV equals the initial investment.   No

3. Annuity factors apply to equal annual cash flows.   Yes

4. The present value of Tk 100 receivable in a year is lower at 15% than at 10%.   Yes

5. A higher cost of capital increases the NPV of a conventional project.   No

Correct: Y, N, Y, Y, N difficult Time value

(1) Yes. (2) No: IRR is the rate at which NPV is zero. (3) Yes. (4) Yes. (5) No: a higher rate reduces NPV.

131. A company compares debt and equity. Consider the following. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Higher gearing increases financial risk.   Yes

2. Interest is usually tax deductible.   Yes

3. Debt providers rank ahead of shareholders on liquidation.   Yes

4. Equity dividends are a contractual commitment.   No

5. Retained earnings have no cost.   No

Correct: Y, Y, Y, N, N difficult Debt and equity

(1) Yes. (2) Yes. (3) Yes. (4) No. (5) No.

132. A treasurer compares hedging tools. Consider the following. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. An option gives the right to exchange at a set rate.   Yes

2. A forward contract fixes the rate.   Yes

3. Money market hedges use borrowing and deposits.   Yes

4. An option has no cost.   No

5. Hedging eliminates all risk.   No

Correct: Y, Y, Y, N, N difficult Hedging instruments

(1) Yes. (2) Yes. (3) Yes. (4) No: a premium is paid. (5) No.

133. A firm reviews its financing mix. Consider the following. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. An aggressive policy relies mainly on long-term finance for current assets.   No

2. Overdrafts can be repayable on demand.   Yes

3. Short-term finance exposes the firm to refinancing risk.   Yes

4. A conservative policy uses more short-term finance.   No

5. Matching funds permanent assets with long-term finance.   Yes

Correct: N, Y, Y, N, Y difficult Working capital finance

(1) No: aggressive policies use more short-term finance. (2) Yes. (3) Yes. (4) No. (5) Yes.

134. A finance team applies rules. Consider the following. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Payback ignores the time value of money.   Yes

2. Capital rationing may require ranking by profitability index.   Yes

3. Accept projects with positive NPV when funds are not constrained.   Yes

4. ARR is a cash-based measure.   No

5. IRR and NPV always rank mutually exclusive projects identically.   No

Correct: Y, Y, Y, N, N difficult Investment rules

(1) Yes. (2) Yes. (3) Yes. (4) No. (5) No.

135. A company considers a listing. Consider the following. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Certificates of deposit are money market instruments.   Yes

2. A listing increases disclosure requirements.   Yes

3. The secondary market is where new securities are first sold to investors.   No

4. Capital markets deal in short-term instruments.   No

5. The primary market is where securities are first issued.   Yes

Correct: Y, Y, N, N, Y difficult Financial markets

(1) Yes. (2) Yes. (3) No: new issues occur in the primary market. (4) No. (5) Yes.

136. Consider rights and bonus issues. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. A rights issue raises cash.   Yes

2. A bonus issue raises new cash for the company.   No

3. A bonus issue changes the total value of the company.   No

4. Rights can be sold.   Yes

5. The theoretical ex-rights price is a weighted average.   Yes

Correct: Y, N, N, Y, Y difficult Rights and bonus

(1) Yes. (2) No: a bonus issue capitalises reserves and raises no cash. (3) No. (4) Yes. (5) Yes.

137. Consider bonds. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Bond prices fall when yields rise.   Yes

2. The coupon rate equals the yield at all times.   No

3. Green bonds fund environmental projects.   Yes

4. Bonds redeemable at par pay their nominal value at maturity.   Yes

5. A bond issued at a discount has a yield below its coupon rate.   No

Correct: Y, N, Y, Y, N difficult Bonds

(1) Yes. (2) No. (3) Yes. (4) Yes. (5) No: a discount bond has a yield above its coupon.

138. Consider receivables and payables. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Extending credit always improves cash flow.   No

2. Factoring always increases administration costs for the seller.   No

3. Credit limits help control bad debts.   Yes

4. Settlement discounts can speed collection.   Yes

5. Late payment to suppliers can harm relationships.   Yes

Correct: N, N, Y, Y, Y difficult Credit management

(1) No. (2) No: factoring can reduce administration costs. (3) Yes. (4) Yes. (5) Yes.

139. Consider estimating the cost of capital. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. The dividend growth model assumes constant growth.   Yes

2. Preference dividends are tax deductible.   No

3. Beta measures systematic risk.   Yes

4. WACC should use book values only.   No

5. Cost of equity can be estimated by CAPM.   Yes

Correct: Y, N, Y, N, Y difficult Cost of capital components

(1) Yes. (2) No. (3) Yes. (4) No. (5) Yes.

140. Consider crowdfunding, angels and venture capital. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Green bonds are a form of debt.   Yes

2. Venture capital investors expect an exit.   Yes

3. Crowdfunding pools small amounts from many investors.   Yes

4. Peer-to-peer lending cannot be done online.   No

5. Business angels are institutions that invest only in listed companies.   No

Correct: Y, Y, Y, N, N difficult Alternative finance

(1) Yes. (2) Yes. (3) Yes. (4) No. (5) No: angels are wealthy individuals who invest in start-ups.

141. An exporter assesses risks. Consider the following. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Forfaiting can transfer credit risk.   Yes

2. Political risk is irrelevant to exporting.   No

3. A letter of credit can reduce non-payment risk.   Yes

4. Exchange rate movements can alter taka receipts.   Yes

5. Open account trading carries less credit risk than a confirmed letter of credit.   No

Correct: Y, N, Y, Y, N difficult Export risks

(1) Yes. (2) No. (3) Yes. (4) Yes. (5) No: open account carries more credit risk.

142. A project costs Tk 400m with an expected residual value of Tk 40m. Accounting profits over four years are Tk 70m, 80m, 90m and 60m. What is the ARR on average investment, and what is its main weakness?

A) About 19%, and its weakness is that it uses discounted cash flows and so cannot be compared with the cost of capital
B) About 68%, and its weakness is that it uses total profit over the life and not the average annual profit
C) About 34%, and its weakness is that it ignores profits after the first year and so is unsuitable for any multi-year project
D) About 34%, and its weakness is that it uses accounting profits and ignores the timing of cash flows

Correct: D complex Accounting rate of return

Average profit = 300/4 = 75. Average investment = (400 + 40)/2 = 220. ARR = 75/220 = 34.1%. 75/400 would give 18.75%. ARR ignores timing and is based on accounting profit.

143. A private company has maintainable earnings of Tk 100m. Comparable listed companies trade at a P/E of 11, but a 25% discount is applied for lack of marketability. What is the estimated equity value?

A) Tk 825m
B) Tk 1,375m
C) Tk 1,100m
D) Tk 275m

Correct: A complex P/E valuation

Value = 100 × 11 = 1,100; less 25% = 825. Removing the discount gives 1,100; applying 25% as the multiple gives 275.

144. A project costs Tk 100m now and returns cash flows of Tk 40m, Tk 50m and Tk 60m at the end of years 1 to 3. The cost of capital is 10%. What is the NPV, and what is the decision?

A) NPV is +Tk 50.0m, because the three cash flows total Tk 150m and the cost is Tk 100m
B) NPV is about +Tk 22.8m, so the project adds value and should be accepted if the cash flows are reliable
C) NPV is about +Tk 12.8m, because the cash flows have been discounted at 10% in total and not year by year
D) NPV is about −Tk 22.8m, because discounting reduces the cash flows below the initial cost

Correct: B complex NPV calculation

PV = 40 × 0.9091 + 50 × 0.8264 + 60 × 0.7513 = 36.36 + 41.32 + 45.08 = 122.76. NPV = 122.76 − 100 = +22.76m. A positive NPV increases shareholder wealth.

145. A project has an NPV of +Tk 12m at a 10% discount rate and −Tk 8m at 15%. The company's cost of capital is 12%. What is the approximate IRR, and what is the decision?

A) About 11.5%, which is below the 12% cost of capital, so the project should be rejected
B) About 13%, which is higher than the NPV of Tk 12m, so the project is acceptable because the IRR is more than the NPV
C) About 13%, which exceeds the 12% cost of capital, so the project is acceptable on the IRR criterion
D) About 12.5%, which exceeds the 12% cost of capital by a small margin

Correct: C complex IRR interpolation

IRR ≈ 10% + [12 / (12 + 8)] × 5% = 10% + 3% = 13%. It is above the 12% cost of capital so the project is acceptable. IRR is a percentage and cannot be compared with an NPV amount.

146. A project costs Tk 60m and returns Tk 20m, Tk 25m, Tk 30m and Tk 30m in years 1 to 4. The discount rate is 10%. What are the payback period and the discounted payback period?

A) Payback is 3.0 years and discounted payback is about 3.5 years, longer because payback ignores the first year's cash flow
B) Payback is 2.5 years and discounted payback is about 2.9 years, longer
C) Payback is 2.5 years and discounted payback is about 2.1 years, shorter because discounting increases the value of the cash flows
D) Payback is 2.0 years and discounted payback is about 2.9 years, longer because the payback period uses discounted cash flows throughout

Correct: B complex Payback and discounted payback

Cumulative undiscounted: 20, 45, 75 → 2 + 15/30 = 2.5 years. Discounted: 18.18, 20.66, 22.54 → cumulative 38.84 after year 2 and 61.38 after year 3, so 2 + 21.16/22.54 ≈ 2.9 years.

147. A company's share price is Tk 800 (ex-dividend). The dividend just paid was Tk 40 and dividends are expected to grow at 5% a year. What is the cost of equity, and what would the price be if investors required 12%?

A) Cost of equity is 10.25%, and at a required return of 12% the price would be Tk 333
B) Cost of equity is 10.25%, and at a required return of 12% the price would be Tk 600
C) Cost of equity is 5.25%, and at a required return of 12% the price would be Tk 600
D) Cost of equity is 10.0%, and at a required return of 12% the price would be Tk 571

Correct: B complex Dividend growth model

ke = D0(1 + g)/P0 + g = 42/800 + 5% = 5.25% + 5% = 10.25%. At 12%: P0 = 42/(0.12 − 0.05) = 600. Using D0 in place of D1 gives 10.0% and 571 (40/0.07).

148. The risk-free rate is 5%, the market return is 11% and a company's equity beta is 1.3. What is the cost of equity, and what risk does beta reflect?

A) 14.3%, and beta reflects systematic (market) risk that cannot be removed by diversification
B) 7.8%, and beta reflects the company-specific risk that investors can eliminate by holding a diversified portfolio
C) 12.8%, and beta reflects systematic (market) risk that cannot be removed by diversification
D) 12.8%, and beta reflects the total risk of the company including risks that can be removed by diversification

Correct: C difficult CAPM

ke = 5% + 1.3 × (11% − 5%) = 12.8%. CAPM prices only systematic risk because specific risk is diversified away. Adding the beta to the market return is an error.

149. A company has equity of Tk 600m with a cost of 12% and debt of Tk 400m with a pre-tax cost of 9%. The tax rate is 25%. What is the WACC?

A) 9.9%
B) 8.7%
C) 11.0%
D) 10.8%

Correct: A difficult WACC

After-tax cost of debt = 9% × 0.75 = 6.75%. WACC = (600 × 12% + 400 × 6.75%)/1,000 = (72 + 27)/1,000 = 9.9%. Ignoring tax gives 10.8%.

150. An asset can be bought for Tk 65m with an expected resale of Tk 10m after four years, or leased for Tk 20m a year paid at each year end. Ignoring tax, the cost of capital is 10% (4-year annuity factor 3.170, year 4 discount factor 0.683). Which is cheaper and by how much?

A) Buying is cheaper by about Tk 5.2m, because its net present cost is about Tk 58.2m against Tk 63.4m for leasing
B) Leasing is cheaper by about Tk 1.6m, because its present cost is Tk 63.4m against a net purchase cost of Tk 65m
C) Leasing is cheaper by about Tk 5.2m, because its net present cost is about Tk 58.2m against Tk 63.4m for buying
D) Buying is cheaper by about Tk 15.0m, because the purchase cost of Tk 65m is lower than the total lease payments of Tk 80m

Correct: A complex Lease or buy

Lease PV = 20 × 3.170 = 63.4. Buy PV = 65 − 10 × 0.683 = 58.17. Buying is cheaper by 63.4 − 58.2 = about 5.2. Undiscounted comparisons and ignoring the resale value give the wrong result.