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Army Institute of Business Administration (Army IBA), Savar

Program: Bachelor of Business Administration

Semester: July-Dec 2020
Mid-term Examination
FIN 2402: Financial Management
Batch: BBA- 6
Full Marks: 20
Instructions: 1. Appropriate marks for each question are given in the margin.

Question: 01 Marks: 15

Solve these discussion questions based on the given case.

ABC pharmaceutical is a leading manufacturer of prescription and ethical drugs; specially foods and
candles; and proprietary drugs. Important products names include Advil, Anacin, Dimetapp, Norplant and
Robitussin. Total revenues in the last fiscal year were in excess of Tk 10 Crore.

Long-Term Debt:

The company has a capital structure that is made up of 40 percent long-term debt, 5 percent preferred
stock, and remaining percentage as common stock.

One of the two largest domestic long-term debt issues is a 10% coupon bond that is due in 25 years. This
bond is currently selling for 940 tk and its face value is 1000 tk. The bond is callable in 8 years and if
called price will be 1105 tk.

The other large publicly held bond is 9% coupon bond that is due in 9 years. This bond is selling for
972.50tk. Both of these bonds are rated A by Moody’s.

Discussion Questions:

1. In the case, look at the 10% coupon bond and estimate its current yield, yield to maturity (YTM)
and yield to call (YTC). (6)
2. Do you think this bond will be called? Why or why not?(2)
3. What would be the value of the 10 percent coupon bond if the time to maturity was 10 years
rather than 25 years?(3)
4. Assume that the risk-free rate is 6% and that the expected return of the market is 11%. According
to the security market line valuation model, what is the required rate of return for ABCcommon
stock if its beta is 1.15? What would happen if beta would have increased to 1.40? Estimate and
explain. (4)
Question: 02 Marks: 05

What is financial analysis? Suppose you want to invest in a new business during this pandemic. What
type of role a financial analysis can play to help you out of this situation.