Principles of Finance Midterm Fall 2025 Question Paper

Question 1: Read each of the questions carefully and answer precisely (preferably in 2-3 sentences each): (i) Suppose, your friend, Fredous, asked you to lend him Tk. 5,000 today. He promised you to pay Tk. 5,000 back a year later. Considering one of the principles of finance, you denied him to lend the fund today. Explain the reason. [CLO 01, L02, Mark: 2] (ii) A company purchased a machinery equipment using long term funds. Has the company done right? Explain. [CLO 01, L02/Mark: 2] (iii) "Agency problems arise when managers deviate from the goal of maximization of shareholder wealth by placing their personal goals ahead of the goals of shareholders." Explain. [CLO 01, L02, Mark: 3] (iv) Compare a line of credit and revolving credit. [CLO 01, L02, Mark: 3] Question 2: A company needs Tk. 800,000 to meet working capital requirement immediately. It has the following alternative sources: (i) The company can buy Tk. 800,000 of raw materials on terms of 3/25, Net 90. (ii) BRAC Bank PLC will lend Tk. 800,000 at 13% interest with 15% compensating balance requirements. (iii) To issue a 3-month-commercial paper worth Tk. 850,000 discounted at Tk. 825,000. The arranger is expected to charge Tk. 22,500 as floatation costs. (iv) The City bank PLC offers a revolving credit agreement for Tk. 800,000 at 12.5% interest with a commitment fee of 0.50% on the average unused balance. The average use of loan is 75% Requirement: Which alternative should the company choose and why? [CLO 03, L05, Mark: 7] Question 3: (i) Daffodil Computer Ltd. has borrowed Tk. 60,00,000 with a 13 percent interest rate for 5 years from AB Bank PLC. The company has to repay the loan and interest at each year's end. Apply the facts to identify the amount of annual payment that Daffodil Computer Ltd. must make to pay off the loan and to prepare an amortization schedule based on the Capital Recovery Method. [CLO 02, L03, Mark: 4] (ii) Mr. Mahmud is planning to go for higher studies in Australia after 10 years when he will require Tk. 25,00,000. Currently, the banks provide 10% rate on deposits. Determine the amount of deposit per month to make the funds of higher studies available after 10 years? [CLO 03, L05, Mark: 4]