Bece Model Questions Vol1 2018 Business Studies Question 5

Practice practical question 5 from the 2018 Bece Model Questions Vol1 Business Studies examination. This question covers Banking, Loans, Interest Calculation, Cash Flow Analysis .

Bece Model Questions Vol1 2018 Business Studies Practical
Topics: Banking Loans Interest Calculation Cash Flow Analysis
Question 5 BECE_MODEL_QUESTIONS_VOL1 • 2018 • BUSINESS_STUDIES • practical

A small trading business applies for a term loan from XYZ Bank. The bank offers a loan of ₦500,000 at a nominal annual interest rate of 12% payable monthly. A processing fee of 2% of the loan amount is charged at disbursement. The loan is to be repaid in equal monthly instalments over 24 months. The business expects a steady monthly net cash inflow of ₦30,000 from its operations.

Question Parts

( a )
Calculate the amount of the processing fee and the net amount the business will actually receive.
( b )
Determine the monthly instalment amount the business must pay to the bank. Show the formula you use.
( c )
Compute the total amount the business will have paid to the bank at the end of the loan period and state the total cost of the loan (interest plus fee).
( d )
Assess the loan in terms of effective cost and affordability.
( ) Calculate the effective annual interest rate that reflects the processing fee as part of the cost of borrowing.
( ) State whether the loan is affordable, given that the business wants the monthly cash inflow to exceed the instalment by at least 20%.

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About This Question

This is Bece Model Questions Vol1 2018 Business Studies Question 5. It is one of the practical questions from the 2018 Bece Model Questions Vol1 Business Studies examination.

The question covers Banking, Loans, Interest Calculation, Cash Flow Analysis .

View More Bece Model Questions Vol1 2018 Business Studies Questions More Bece Model Questions Vol1 Practice Questions Back to Questions

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