Principles of Finance Midterm Fall 2025 Question Paper

Question 1: Read each of the questions carefully and answer precisely: (i) Define Ordinary Annuity. Explain the internal source of finance with examples. [CLO 01, L02, Mark: 3] (ii) Profitability High Low Liquidity High Low Risk High Low Return High Figure 1 Figure 2 Explain the principles of business finance illustrated in Figures 1 and 2, and discuss the relationships between the variables presented in each figure. [CLO 01, L02, Mark: 4] (iii) Describe the following terms: a. Spontaneous short-term finance [CLO 01, L02, Mark: 1.5] b. Compensating balance [CLO 01, L02, Mark: 1.5] Question 2: Apex Consumer Products Ltd. requires Tk. 8 crore (Tk. 80,000,000) immediately to finance its seasonal working capital requirements. The finance manager is evaluating the following short-term financing alternatives: 1. The company purchases raw materials on the following credit terms: 2/10, Net 60 ii. A commercial bank is willing to provide a short-term loan of Tk. 10 crore at an annual interest rate of 13%. However, the bank requires a 10% compensating balance to be maintained throughout the loan period. iii. The company can issue commercial paper at a 7% discount rate with a maturity period of 180 days. The flotation cost for each issue is Tk. 200,000. iv. A bank offers a revolving credit facility at an annual interest rate of 14%. A commitment fee of 0.50% is charged on the average unused portion of the credit line. The company expects to utilize 80% of the facility on average during the year. Requirement: Which alternative should the company choose and why? [CLO 03, L05, Mark: 7] Question 3: (i) Daffodil Computer Ltd. has borrowed Tk. 45,00,000 with a 13 percent interest rate for 4 years from AB Bank PLC. The company has to repay the loan and interest at each year's end. Prepare an amortization schedule based on the Balloon Payment Method to determine the amount of the amount of annual payment that Daffodil Computer Ltd. must make to pay off the loan. [CLO 02, L03, Mark: 4] (ii) Mr Rahman is a businessman. After operating one-year business, he has found that he has earned tk 20000 monthly profit from his firm. He has been offered a proposal by manager of ABC bank ltd. The bank will give 9% interest rate and he agrees to invest tk 1500 per month. If installments are deposited beginning of each period, calculate the amount of deposit that will be accumulated at the end of 10 years. [CLO 02, L03, Mark: 4]