Waec Model Questions Vol1 2022 Commerce Question 5

Practice objective / multiple choice question 5 from the 2022 Waec Model Questions Vol1 Commerce examination.

Waec Model Questions Vol1 2022 Commerce Objective / Multiple Choice Medium Difficulty
Question 5 WAEC_MODEL_QUESTIONS_VOL1 • 2022 • COMMERCE • objective

A firm's current capital structure is 60% equity (cost 12% p.a.), 30% long‑term loan (cost 9% p.a.) and 10% short‑term loan (cost 11% p.a.). The firm plans to raise an additional ₦5 million by issuing new equity, which will increase the equity proportion to 70% while reducing the long‑term loan proportion to 20% (the short‑term loan proportion remains 10%). Compute the current weighted average cost of capital (WACC) and the new WACC after the change. Which financing arrangement results in a lower overall cost?

Answer Options

Correct Answer A. Current WACC = 11.0%; New WACC = 11.3%; Current financing is cheaper
B. Current WACC = 11.0%; New WACC = 11.3%; New financing is cheaper
C. Current WACC = 10.8%; New WACC = 11.5%; New financing is cheaper
D. Current WACC = 11.2%; New WACC = 11.0%; New financing is cheaper
Correct Answer
A
Correct Option:
Current WACC = 11.0%; New WACC = 11.3%; Current financing is cheaper

About This Question

This is Waec Model Questions Vol1 2022 Commerce Question 5. It is one of the objective questions from the 2022 Waec Model Questions Vol1 Commerce examination.

Difficulty level: Medium .

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