BUSINESS ANALYSIS

Time allowed 3 hours

Total marks 100
[N.B. Figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and the way 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) Examine the degree to which the three concepts: positioning, product differentiation and
marketsegmentation relate with each other.
(b) What is an Operating Turnaround Strategy?
(c) Discuss the dangers of mismatch between corporate image and corporateidentity. What strategies
are possible for closing this difference gap?
(d) How can the emergence of the importance of corporate social responsibility beseen as a threat to
the purpose of an organization?
(e) The BCG (Growth-Share) Matrix is old but has stood the test of time. Howsignificant and
practicably usable is it today, in the light of vast developments inmanagement tools that help assess
market conditions?
(f) (i) Discuss about some of the reconstruction schemes that Company can perform.
(ii) Whatis financial reconstructions? Why companies need financial restructuring?
(iii) A firm currently has debt-equity ratio of 0.12 and a return on assets (ROA) equal to 15%. The
firm could raise to debt equity ratio up to 0.30 without increasing the risk of bankruptcy. The
firm plans to borrow and issue new equity shares to get to this optimal ratio. The interest rate is
expected to increase from 7 per cent to 9 per cent. The companys effective tax rate is 28% and
the retention rate is 50 per cent. Find the impact of the increase in debt in growth rate.
2. (a) How does enterprise risk management (ERM) differ from traditional risk management process?

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(b) You are risk advisor to Madisson Water Garden Dhaka, an international five star hotel in Dhaka,
Bangladesh and now developing its enterprise risk management policy. Please describe the
elements of approach to enterprise risk management for Madisson Water Garden Dhaka.

(c) Mahjabin Ltd was established over a century ago and manufactures water pumps of various kinds.
Until recently it has been successful, but imports of higher quality pumps at a lower prices are now
rapidly eroding its market share. The managing director fells helpless in the face of this onslaught
from international competitors and is frantically searching for a solution to this problem. In this
desperation, he consults a range of management journals and comes across what seems to be a
wonder cure by the name of Business Process Re-engineering (BPR). According to the article, the
use of BPR has already transformed the performance of a significant number of companies which
were mentioned in the article, and is now being widely adopted by many companies. Unfortunately,
the remainder of the article which purports to explain BPR is full of management jargon and he is
left with only a vague idea of how it works.
Requirements:
(i) Explain the nature of BPR and describe how it might be applied to manufacturing company like
Mahjabin Ltd.
(ii) Describe the major pitfalls for managers attempting to re-engineer their organisations.

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(d) You are an analyst with Mayfair Ltd which is considering the acquisition of Board Ltd. Board Ltd
has 5 million shares on issue which have a market price of Taka 2 each. Mayfair Ltd has 20 million
shares on issue with a market price of Taka 4.60 each before the takeover bid for Board Ltd is
announced. You have identified the following effects of the takeover:
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Investment of Taka 400,000 will be required immediately to upgrade some of Boards older
assets;
Asset upgrading, economies of scale, and improved efficiency will increase net operating cash
flows by Taka 290,000 per annum in perpetuity;
Some of Boards assets which been producing a cash inflow of Taka 70,000 per annum will be
sold. The new owners of these properties should be able to use them more profitably and sale
proceeds are expected to be Taka 800,000;
New plant costing Taka 1 million will be purchased and is expected to generate net operating
cash flows of Taka 230,000 per annum in perpetuity.

Boards activities are all of the same risk and the required rate of return is 15 per cent per annum.
(i) Please estimate the gain from the takeover and the maximum price that Mayfair should be
prepared to pay for Boards shares.
(ii) Suppose that Mayfair pays Taka 2.30 per share for Board, giving a total outlay of Taka 11.50
million, what is the net cost of takeover and the gain to Mayfairs shareholders?
(iii) If Mayfair offers one of its shares for every two shares in Board,what is the net cost of the
takeover?

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3. (a) The following figures have been extracted from the most recent accounts of CYR Ltd.
Statement of Financial Position as at June 30 2013
BDT 000
Non-current assets
Investments
Current assets
Less: Current liabilities

BDT 000
10,115
821

3,658
1,735
1,923
12,859

Ordinary share capital

Authorized: 4,000,000 shares of BDT 1
Issued: 3,000,000 share of BDT 1
Reserves
Shareholders funds
7% Debentures
Deferred Taxation
Corporation tax

3,000
7,257
10,257
1,300
583
719
12,859

Summary of profit and dividends

__________________________________________________________________________________
BDT 000
BDT000
BDT 000
Year ended 30 June
2010 2011
2012
2013 2014
Profit after interest and before tax
1,737 2,090
1,940
Less: Tax
573 690
640
Profit after interest and tax
1,164 1,400
1,300
Less: Dividends
620 680
740
Added to reserves
544
720
560
_________________________________________________________________________

1,866
616
1,250
740
510

2,179
719
1,460
810
650

The current (July 1 2014) market value of CYR Ltds ordinary shares is BDT 3.27 per share cum
dividend. An annual dividend of BDT 810,000 is due for payment shortly. The debentures are
redeemable at par in ten years time. Their current market value is BDT 77.10. Annual interest has
just been paid on the debentures. There have been no issues or redemptions of ordinary shares or
debentures during the past five years.
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The current corporate tax rate is 23%. Assume that there have been no changes in the system or
rates of taxation during the last five years.
Requirements:
i. Calculate the cost of capital which CYR Ltd should use as a discount rate when apprising new
investment opportunities.
ii. Discuss any difficulties and uncertainties in your estimates.

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(b) A Bangladeshi company is planning to set up a subsidiary in Libya. The initial project cost is
estimated to be Libyan Dinar (LYD) 400 million; working capital requirements are estimated at
LYD 40 million. The Bangladeshi company follows straight-line method of depreciation.
The finance manager of the Bangladeshi company estimated data in respect of the project as
follows:
(i) Variable cost of production and sales LYD 25 per unit;
(ii) Fixed cost per annum LYD 30 million;
(iii) The plant will be producing and selling 50 million units at LYD 100 per unit and
(iv) The expected economic useful life of the plant is 5 years with no salvage value.
The subsidiary of the Bangladeshi company is subject to 40 per cent tax in Libya and the required
rate of return is 12 per cent. The current exchange rate between the two countries is Bangladeshi
Taka (BDT) 48/LYD and the BDT is expected to depreciate by 3 per cent per annum for next five
years.
The subsidiary will be allowed to repatriate 70 per cent of the cash flow after taxes (CFAT) every
year along with the accumulated arrears of blocked funds at year-end 5, the withholding taxes are
10 per cent. The blocked funds will be invested in the Libya money market by the subsidiary,
earning 4 per cent (free of tax) per year.
Requirement:
Determine the feasibility of having a subsidiary company in Libya, assuming no tax liability in
Bangladesh on earnings received by the parent company from the Libyan subsidiary.

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4. (a)Assume that you are the treasurer of a medium sized manufacturing company which trades
throughout Europe. At a recent meeting to discuss the companys policy on foreign exchange
management, the managing director a non-accountant makes the following statements.
Statement 1. Translation risk is concerned only with the effect of exchange rate changes on
financial statements and is mainly an accounting issue. There is no need to hedge this unless we are
close to our foreign currency borrowing limits.
Statement 2. Transaction risk can easily be hedged using the forward market although I am not
inclined either no to hedge at all or to use internal hedging methods as they are cheaper.
Requirements:
(i) In respect of statement 1, explain what the MD means when he says that there is no need to
hedge unless the company is closed to its foreign currency borrowing limits.
(ii) In respect of statement 2, comment on whether the MD is right to consider not hedging as an
appropriate strategy, and, discuss briefly three internal hedging techniques which the company
could consider.

(b) Assume that you are a treasurer of a multinational company based in Switzerland. Your company
trades extensively with the United States. You have just received US $1 million from a customer in
United States. As the company has no immediate need for fund you decide to invest the money
either US$ or Swiss Franc for 12 months. The following information in relevant.
The spot of exchange is SFr 1.3125 to US$ 1
The 12 months forward rate is SFr 1,275 to US$1
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The interest rate on a 1 year Swiss franc bond is 4 9/16 %

The interest rate on a 1 year US$ bond is 7 5/8 %
Assume that investment in either currency is risk free and ignore transaction costs.
Requirement:
Calculate returns under both options (investing in US$ or Swiss francs) and explain why there is so
little difference between the two figures.

(c) The treasury manager of SEAM Capital Management Ltd, expects higher volatility in the foreign
exchange market owing to uncertain geopolitical situation. He expects the Taka to either appreciate
by 2 per cent or depreciate by 2 per cent in comparison to the US Dollar in 30 days time. He
assumes equal probability for the two scenarios. The currency quote machine installed at SEAM
Capital Management Ltd. is flashing the following quotes:
Spot rate
Future rate (for one month)
Call option (strike price Taka 48, one month)
Put option (strike price Taka 48, one month)

Taka 48/USD
48.7650/USD
0.8900/USD
0.2000/USD

Requirements:
(i) What strategy should the treasury manager adopt? Please explain the strategy you recommend.
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(ii) If at the end of one month the spot rate is Taka 49.35/US Dollar, what is the return on
investment?

The End

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