Neco 2017 Commerce Question 40

Practice objective / multiple choice question 40 from the 2017 Neco Commerce examination.

Neco 2017 Commerce Objective / Multiple Choice Medium Difficulty
Question 40 NECO • 2017 • COMMERCE • objective

A firm plans to finance a new project costing ₦10,000,000 using 40\% debt at an annual interest rate of 12\% and 60\% equity requiring a return of 15\%. The corporate tax rate is 30\%.\n(i) Calculate the weighted average cost of capital (WACC).\n(ii) The project is expected to generate an annual cash flow of ₦2,500,000 for 6 years. Using the WACC as the discount rate, compute the net present value (NPV) of the project and state whether it should be accepted.

Answer Options

Correct Answer A. WACC = 12.36 %; NPV ≈ ₦172,500 (positive) - accept the project
B. WACC = 12.36 %; NPV ≈ ₦-50,000 (negative) - reject the project
C. WACC = 11.80 %; NPV ≈ ₦200,000 (positive) - accept the project
D. WACC = 13.20 %; NPV ≈ ₦150,000 (positive) - accept the project
Correct Answer
A
Correct Option:
WACC = 12.36 %; NPV ≈ ₦172,500 (positive) - accept the project

About This Question

This is Neco 2017 Commerce Question 40. It is one of the objective questions from the 2017 Neco Commerce examination.

Difficulty level: Medium .

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