Gce Model Questions Vol1 2023 Commerce Question 24
Practice objective / multiple choice question 24 from the 2023 Gce Model Questions Vol1 Commerce examination.
A company needs \(\text{₦}5{,}000{,}000\) for expansion. It can either (A) obtain a 5‑year bank loan at 12 % per annum (interest payable annually) with a one‑time arrangement fee of 2 % of the loan amount, or (B) issue 5‑year debentures at 10 % per annum (interest payable annually) with flotation costs of 3 % of the issue amount. The corporate tax rate is 30 %. Assuming the fees are amortised evenly over the 5‑year period, which source of finance has the lower after‑tax annual cost and what is that cost (as a percentage of the amount raised)?
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About This Question
This is Gce Model Questions Vol1 2023 Commerce Question 24. It is one of the objective questions from the 2023 Gce Model Questions Vol1 Commerce examination.
Difficulty level: Hard .
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