Gce Model Questions Vol1 2021 Commerce Question 49
Practice objective / multiple choice question 49 from the 2021 Gce Model Questions Vol1 Commerce examination.
A company needs ₦10,000,000 for expansion. It can either (i) obtain a bank loan at a nominal rate of \(9\%\) per annum, interest payable annually, with interest tax‑deductible at a corporate tax rate of \(30\%\); or (ii) issue 10‑year debentures at a nominal rate of \(11\%\) per annum, also tax‑deductible, but the issue incurs an underwriting fee of \(2\%\) of the issue amount, payable at issuance. Assuming the underwriting fee is amortised evenly over the 10‑year life, which source of finance has the lower after‑tax cost of finance? State the after‑tax cost (as a percentage per annum) for each option and indicate the cheaper source.
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About This Question
This is Gce Model Questions Vol1 2021 Commerce Question 49. It is one of the objective questions from the 2021 Gce Model Questions Vol1 Commerce examination.
Difficulty level: Medium .
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