Recruitment Test: Investment Analyst

Duration: 1 Hour and 30 minutes

Economics (Marks: 25)

1. Who gets benefited and who becomes the ultimate loser as a result of the import tariff? (4)

2. How would you describe the type of market structure and competition that exists in
Bangladesh’s telecommunication industry? (5)
3. The growth rate for Capital machinery LC (Letter of Credit) opening and settlement has been
provided below. Explain the reason for this growth trend in LC and how it is related to private
sector credit growth. (5)
Time period LC opening LC settlement
Jul 2019 - Jun 2020 -24.23% -8.51%
Jul 2020 - Nov 2020 -5.89% -38.96%
Jul 2020 - May 2021 16.72% -13.29%

4. At the beginning of the Covid-19 pandemic, Bangladesh Bank announced a loan moratorium
facility for banks as borrowers were facing difficulties in repaying loans within the stipulated
time. BB also instructed lenders not to downgrade the classification of borrowers for a few
months and this facility has been extended several times by the central bank. Can you explain
how the loan moratorium facility might have impacted banks’ balance sheet and income
statements? (5)
5. How has the pandemic affected money supply, GDP growth and the capital market in our
country? (6)
Equities & Valuation (Marks: 25)

1. ABC company has an actual P/E of 8.5x and a justified P/E of 11.5x. LR Global Bangladesh
generally takes a long position in the undervalued stocks and sells the overvalued stocks.
Based on the given information, suggest whether LR Global Bangladesh should buy the stock
or sell the stock? (3)
2. ABC is an agro company which has recently been approved by BSEC to raise funds through
IPO (Initial Public Offering) to finance its working capital. The following information is
provided for the required calculations: (8)

Risk Free Rate (1-year treasury bill) 3%

Market value of debt of ABC BDT 10 mn
Market value of equity after IPO issuance BDT 15 mn
Risk Free Rate (10-year on the run treasury bond) 5.6%
Beta of relevant industry or peer companies 0.95
Tax rate 15%
Cost of debt 8%
Industry debt to equity ratio 100%

I. Calculate the beta for ABC company using deleveraging and re-leveraging technique.
Adjust the beta for mean reversion using Blume’s beta adjustment technique.
II. Determine the cost of equity for ABC using the CAPM method.
III. Calculate weighted average cost of capital (WACC) for ABC company.

3. Under which circumstances and for which type of companies is residual income model most
applicable as a discounted cash flow model? (5)

4. The price of a particular company’s stock is BDT 45 with 20 million shares outstanding. The
company further issued 5 million right shares to the existing shareholders at a price of BDT 10
per share. What will the new price per share of the company be after adjusting for the right
shares? (5)

5. LHBL’s capital structure comprises 60% debt & 40% equity, and the company wants to stick
to its capital structure. The company posted a net profit of BDT 5,000 for FY 2020. As the
economy has reopened after sporadic countrywide lockdowns and economic activities &
construction work have resumed, LHBL has assumed that its sales will increase due to higher
demand for cement by mega projects and other construction works. Hence, the company has
decided to buy a Vertical Roller Mill (VRM) for BDT 12,000. LHBL will not issue new shares
to finance the machine but will follow an internal financing strategy. (4)

I. What is the maximum amount in taka that LHBL can spend on financing the VRM?

II. Can LHBL distribute cash dividends to its existing shareholders? If yes, then how much?