Gce Model Questions Vol1 2023 Commerce Question 5
Practice objective / multiple choice question 5 from the 2023 Gce Model Questions Vol1 Commerce examination.
A small business needs \(\₦5{,}000{,}000\) for expansion. It can raise the funds in one of two ways:\n\n- Bank loan: interest rate 12% per annum, interest payable annually, principal repaid in full at the end of 5 years.\n- Preference shares: dividend rate 10% per annum, payable annually, shares redeemable at par after 5 years.\n\nThe expansion is expected to generate an additional profit of \(\₦800{,}000\) each year. Which source of finance gives the higher net annual cash flow after financing costs? Also state the net cash flow per year for each option (ignore the final principal repayment or redemption).
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About This Question
This is Gce Model Questions Vol1 2023 Commerce Question 5. It is one of the objective questions from the 2023 Gce Model Questions Vol1 Commerce examination.
Difficulty level: Medium .
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