Gce Model Questions Vol1 2020 Commerce Question 28
Practice objective / multiple choice question 28 from the 2020 Gce Model Questions Vol1 Commerce examination.
A small business needs to raise a total of \(₦2{,}000{,}000\). It can obtain a bank loan at 12 % per annum, repayable in equal annual instalments over 4 years, and it can raise the remaining amount by issuing shares. The business must obtain at least 40 % of the required finance from the loan but not more than 60 %. Expected annual profit on the total capital is 15 % of the capital, and a dividend of 10 % of profit will be paid each year to shareholders. Assuming the dividend payment is fixed regardless of the equity raised, determine the loan amount that minimises the total annual cash outflow (loan instalment plus dividend). State the loan amount and the corresponding total annual cash outflow.
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About This Question
This is Gce Model Questions Vol1 2020 Commerce Question 28. It is one of the objective questions from the 2020 Gce Model Questions Vol1 Commerce examination.
Difficulty level: Medium .
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