A company needs $\text{₦}5{,}000{,}000$ for a project.\nOption A: a bank loan of $\text{₦}5{,}000{,}000$ at $9\%$ per annum payable annually, with a one‑off arrangement fee of $1.5\%$ of the loan amount.\nOption B: 5‑year debentures with a face value of $\text{₦}5{,}000{,}000$, sold at a discount of $4\%$ and with annual flotation costs of $0.5\%$ of the issue price. The debentures carry an annual coupon of $8\%$ on face value. Assuming the company holds the debentures to maturity, calculate the annualised cost (as a percentage of net proceeds) for each option and state which is cheaper.

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Option B is cheaper; annualised cost ≈ 8.83 % for Option B and ≈ 9.44 % for Option A

Gce Model Questions Vol1 2025 Commerce Question 39

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