Waec Model Questions Vol1 2019 Commerce Question 8

Practice objective / multiple choice question 8 from the 2019 Waec Model Questions Vol1 Commerce examination.

Waec Model Questions Vol1 2019 Commerce Objective / Multiple Choice Hard Difficulty
Question 8 WAEC_MODEL_QUESTIONS_VOL1 • 2019 • COMMERCE • objective

A firm needs ₦10,000,000 for a new project. It can raise the funds by a bank loan at a nominal interest rate of 12% per annum (interest is tax‑deductible) and by issuing ordinary shares whose cost of equity is 18% per annum. The corporate tax rate is 30%. Management wants to keep the proportion of debt in the capital structure at or below 40% because of risk considerations. What is the optimal mix of debt and equity (in naira) that minimises the weighted average cost of capital (WACC) and what is the resulting WACC (expressed as a percentage to two decimal places)?

Answer Options

A. Debt ₦5,000,000, Equity ₦5,000,000, WACC 13.50%
Correct Answer B. Debt ₦4,000,000, Equity ₦6,000,000, WACC 14.16%
C. Debt ₦3,000,000, Equity ₦7,000,000, WACC 14.70%
D. Debt ₦4,500,000, Equity ₦5,500,000, WACC 13.90%
Correct Answer
B
Correct Option:
Debt ₦4,000,000, Equity ₦6,000,000, WACC 14.16%

About This Question

This is Waec Model Questions Vol1 2019 Commerce Question 8. It is one of the objective questions from the 2019 Waec Model Questions Vol1 Commerce examination.

Difficulty level: Hard .

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