Gce Model Questions Vol1 2020 Commerce Question 9

Practice essay / theory question 9 from the 2020 Gce Model Questions Vol1 Commerce examination. This question covers Banking, Finance, Interest calculations, Cash flow analysis .

Gce Model Questions Vol1 2020 Commerce Essay / Theory
Topics: Banking Finance Interest calculations Cash flow analysis
Question 9 GCE_MODEL_QUESTIONS_VOL1 • 2020 • COMMERCE • essay

A small manufacturing firm is considering two financing alternatives for a capital requirement of ₦500,000. Option 1 is a fixed‑deposit investment with the bank that pays a nominal rate of 8% per annum, compounded semi‑annually, for a period of 2 years. Option 2 is a revolving credit facility that charges a nominal rate of 12% per annum, calculated monthly on the reducing balance, and must be repaid in equal monthly instalments over 24 months. Using the information given, answer the following:

Question Parts

( a )
Calculate the effective annual rate (EAR) for the fixed‑deposit and determine the amount the firm will have at the end of the 2‑year period.
( b )
Determine the monthly instalment required to repay the credit facility and calculate the total interest payable over the 24 months.
( c )
Discuss the advantages and disadvantages of each financing option for the firm, considering cash‑flow timing, cost of finance and any risk factors.
( d )
Based on your calculations and discussion, recommend which option the firm should adopt and justify your recommendation.

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About This Question

This is Gce Model Questions Vol1 2020 Commerce Question 9. It is one of the essay questions from the 2020 Gce Model Questions Vol1 Commerce examination.

The question covers Banking, Finance, Interest calculations, Cash flow analysis .

View More Gce Model Questions Vol1 2020 Commerce Questions More Gce Model Questions Vol1 Practice Questions Back to Questions

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