BUSINESS & FINANCE

Time allowed – 1½ hours

Total Marks – 100

[N.B. – Figures in the margin indicate full marks. Question 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) What is break-even point? 2
(b) Diamond Co. plans to earn Tk.2,10,000 after income taxes in 2013. The tax rate is to be
assumed 60 percent of net income before taxes. The fixed costs for the year are estimated at
Tk.4,20,000. The contribution margin is estimated at 20 percent of sales revenue.
You are required to:
(a) Compute the sales revenue required to earn a net income after income taxes of
Tk.2,10,000. 4
(b) If the contribution margin can be increased to 25 percent how much sales revenue will be
required to earn a net income after income taxes of Tk.2,10,000? 4

2. A condensed Balance Sheet and other financial data for the Alpha Company appear below:
Alpha Company
Balance Sheet as on Dec. 31, 2012
ASSETS Tk.
Current assets 1,00,000
Plant and machinery 1,50,000
2,50,000
LIABILITIES AND SHAREHOLDERS’ EQUITY Tk.
Current liabilities 1,00,000
Long-term liabilities 75,000
1,75,000
Shareholders’ equity 75,000
Total liabilities and Shareholders’ equity 2,50,000
Income statement data appear below:
Net Sales Tk.3,75,000
Interest expense Tk. 4,000
Net income Tk. 22,500
The following account balances existed at 31, December 2011:
Total assets Tk.2,00,000
Shareholders’ equity Tk. 65,000
The tax rate is 35 percent. Industry norms as of 31, December 2012 are:
Debt / equity ratio 1.75
Profit Margin 0.12
Return on total assets 0.15
Return on shareholders’ equity .30
Total asset turnover 1.71
Calculate and comment on the following ratios for Alpha Company as of 31, December 2012: 4x5=20
(a) Debt / equity ratios,
(b) Profit margin,
(c) Return on total assets,
(d) Return on shareholders’ equity, and
(e) Total asset turnover.

[Please turn over]

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3. (a) What should be the aim of good cash management? 3

(b) Wilder Corporation is considering granting credit to currently limited customers or no-credit
customers. The following information is given: 7
Category Bad Debt Collection Period Credit terms Incremental Annual Sales
Percentage Accompanying Relaxation in
credit Standards
(Tk.)
A 3% 20 days Full 2,50,000
B 6% 45 days Restricted 5,40,000
C 10% 90 days No Credit 8,00,000
Gross profit approximates 12 percent of sales. The rate of return is 18 percent.
Should credit be extended to categories B & C?

4. (a) What is Zero Based Budgeting? Is there any difference between Flexible vs. Rolling budget? 5
(b) SM Consulting has Tk.500,000 which it can invest risk-free at 8% per annum in a deposit
account. It also has an opportunity to invest the funds to receive back a total of Tk.560,000 in
12 months’ time; because this investment is not risk-free the business expects a return of 9%
on it. What should the business do considering DCF method? 5

5. (a) Define payback period. 3

(b) Adam Beverage Limited operates many outlets throughout the Dhaka city. Some of the
vending machines in one of its outlets provide very little revenue, so the company is
considering removing the machines and installing equipment to dispense soft ice cream. The
equipment would cost Tk.2,000,000 and have an 8 year useful life. Incremental annual
revenues and costs associated with the sale of ice cream would be as follows:
Taka
Revenue 25,000,000
Less: Cost of sales 15,000,000
Contribution margin 10,000,000
Less: Fixed expenses:
Payroll cost 350,000
Repair & maintenance 50,000
Depreciation 250,000
Total Fixed expenses 650,000
Net operating income 350,000
The vending machines can be sold for Tk.50,000 scrap value. The company will not buy
equipment unless it has a payback of 4 years or less. Should the equipment be purchased? 7

6. (a) What are business ethics? What are the main functions of code of ethics? 5
(b) What should a company have in mind relating to the objectives of code of ethics? 5

7. (a) Explain about the code of corporate governance. 4

(b) What are the important points that need to be covered in the Directors’ Report to
Shareholders prepared under section 184 of Companies Act, 1994? 6

8. (a) Define product life cycle. 3

(b) Discuss the various stages of the product life cycle. 7

9. (a) What is meant by professional behavior of the professional accountants? 5

(b) Discuss the various threats to professional principles. 5

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