BUSINESS & FINANCE

Time allowed - 2 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 way 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) What do you understand by primary and secondary objectives of business?
(b) Is wealth maximisation always the primary objective of business?
(c) How would you measure that a business has performed well?
2. (a) What is the purpose of the EOQ model? Why may a JIT control system be useful in disclosing
a firm's inefficiencies and problems?
(a) The Setu Enterprise orders most of its items in lot sizes of 10 units. Average annual demand per
side of beef is 720 units per year. Ordering costs are Tk.25 per order with an average
purchasing price of Tk. 100 per unit. Annual inventory carrying costs are estimated to be 40%
of the unit cost.

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3
4

Required:
i. Determine the Economic Order Quantity (EOQ).
ii. Determine the annual cost savings if the shop changes from an order size of 10 units to the
Economic Order Quantity.
iii. Since the shelf life is limited, the Setu Enterprise must keep the inventory moving.
Assuming a 360-day year, determine the optimal lot size under each of the following: (1) a
20-day shelf life and (2) a 10-day shelf life.
3. (a) Define span of control in a business organization.
(b) What factors influence the span of control in a business?

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4. (a) Explain break-even point.

(b) A business makes 3 different products as follows:

Products
Selling price per unit (Tk.)
Variable cost per unit (Tk.)
Weekly demand (units)
Machine time per unit (hours)

A
25
10
25
4

B
20
8
20
3

C
23
12
30
4

Fixed costs are not affected by the choice of product because all 3 products use the same
machine. Machine time is limited to 148 hours a week.
Required:
Which combination of products should be manufactured if the business is to produce the
highest profit?
5. (a) What are the good practices in receivable management?
(b) X Ltd. has monthly sales of Tk.20,000. 25% of receivables are paid within one month of a sale
and 70% are paid within two months, but 5% of receivables are never paid. X Ltd. proposes
offering a 3% discount to receivables settling invoices within one month of the invoice date. As
a result, monthly sales are predicted to rise to Tk.25,000 and 50% of trade receivables will pay
within one month 44% will pay within two months but irrecoverable debts will rise to 6%. All
sales are invoiced at the end of each month.

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3

The discount will be offered for all invoices issued from Month1.
By how much will total cash inflows from trade receivables in months 1 & 2 change as a result,
and what will be the effect on profit?
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6. (a) What is corporate governance?

(b) What are the objectives of corporate governance?
(c) What is the external audits role in corporate governance?

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7. (a) Who are the users of financial information of an entity?

(b) Discuss the 4 (four) leadership styles propounded by Likert.

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8. (a) Does a project that generates a positive internal rate of return also have a positive net present value?
Explain.

(b) Nandan Group is considering a proposal to install new machine at a cost of Tk.50,000. The facility
has life expectancy of 5 years and no salvage value. The tax rate is 35%. Assume the firm uses
straight line depreciation and the same is allowed for tax purposes. The estimated cash flows before
depreciation and tax (CFBT) from the investment proposal are as follows:
Year
CFBT

1
Tk. 10,000

2
10,692

3
12,769

4
13,462

5
20,385

Should the proposal be accepted? Answer the question by using NPV.

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9. Accounts of a manufacturer of products for the construction industry are as follows:

Revenue
Cost of sales
Gross profit

2014
(In million Tk.)
2,065.0
1,478.6
586.4

Current assets:
Inventory
Receivable (Note 1)
Short-term investments
Cast at bank and in hand
Current liabilities:
Loans and overdrafts
Corporate taxes
Dividend
Payables (Note 2)
Net current assets

2013
(In million Tk.)
1,788.7
1,304.0
484.7

119.0
400.9
4.2
48.2
572.3

109.0
347.4
18.4
48.0
523.2

49.1
62.0
19.2
370.7
501.0

35.3
46.7
14.3
324.0
420.3

71.3

102.9

Notes:
1. Receivable includes Trade receivables
2. Payable includes Trade payables

2014

2013

329.8
236.2

285.4
210.8

Required:
From the information of the above accounts calculate at least five liquidity and working capital ratios
and make comments thereon.

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