Strategic Finance – Spring 2026 – Midterm

1. Define business valuation of a firm. List the main business valuation methods along with (6) 2. The current year income statement appears in the following table. Infer a forecasted income statement for the year 2026 for Flag3 Company on the basis of sales forecast. (CLO2, L2) Flag3 Company Limited (6) Income Statement for the year ended on 31 December 2025 Sales Revenue Product P (1000 units at Tk. 30) Tk. 30,000 Product Q (2000 units at Tk. 60) 120,000 Total Sales 150,000 Less: Cost of Goods sold Labor 43,000 Materials 20,000 Overhead 57,000 Total Cost of Goods sold 120,000 Gross Profit 30,000 Less: Operating expenses 15,000 Operating profits 15,000 Less: Interest expenses 2000 Net profit before taxes 13,000 Less: Taxes (27%) 3510 Net profit after tax 9490 Less: Common stock dividends 5000 Addition to Retained earnings Tk. 4490 Flag3 Sales Forecast for the next year Unit sales Selling price per unit Amount Product P 1500 Tk. 40 Tk. 60,000 Product Q 1800 70 126,000 Total Tk. 186,000 3. A company is considering two mutually exclusive projects. The company uses a certainty equivalent approach. The estimated cash flow and certainty equivalents for each project are as follows: Project 1 Year Cash Flows (Tk.) Certainty Equivalent Coefficient (0) Project 2 Cash Flows (Tk.) Certainty Equivalent Coefficient (At) 0 -40,000 1.00 -50,000 1.00 1 10,000 0.95 25,000 0.90 2 15,000 0.90 20,000 0.85 3 20,000 0.80 18,000 0.80 4 25,000 0.75 15,000 0.70 The risk-free rate of interest is 7 per cent. Select the better option from the two projects. (CLO2, L.3) (5) 4. Projected Cash flow statement of ABC Company is as follows: Cash Flows (Tk. '000) Year 0 1 2 3 4 5 6 7 Investment -10,000 Revenue 15,000 15,000 15,000 15,000 15,000 15,000 15,000 Variable 6750 6750 6750 6750 6750 6750 6750 Cost Fixed Cost 4000 4000 4000 4000 4000 4000 4000 Depreciation 2500 1875 1406 1055 791 593 1347 EBIT 1750 2375 2844 3195 3459 3657 2903 Tax 613 831 995 1118 1211 1280 1016 PAT 1138 1544 1848 2077 2248 2377 1887 NCF -10,000 3638 3419 3255 3132 3039 2970 3234 Test for a scenario analysis of NPV for optimistic scenario on the basis of the following data. (CLO3, L4) (8) Variables Pessimistic Optimistic Expected Sales volume (unit) 900 1200 1000 Selling price/unit (Tk.) 14 16 15 Variable cost/unit (Tk.) 7 6.50 6.75 Fixed cost (Tk.) 4500 3600 4000 Discount rate 13% 11% 12%