Neco 2017 Commerce Question 9

Practice objective / multiple choice question 9 from the 2017 Neco Commerce examination.

Neco 2017 Commerce Objective / Multiple Choice Medium Difficulty
Question 9 NECO • 2017 • COMMERCE • objective

A firm finances a new project costing \(\text{₦}10{,}000{,}000\) with 40\% equity, 30\% long‑term debt at 12\% interest, and 30\% retained earnings. The cost of new equity is 15\% and the cost of retained earnings is 13\%. The corporate tax rate is 35\%. (i) Compute the weighted average cost of capital (WACC) for the project. (ii) If the project will generate an annual cash flow of \(\text{₦}2{,}200{,}000\) indefinitely, determine whether the project's net present value (NPV) is positive, discounting the cash flows at the WACC.

Answer Options

Correct Answer A. WACC = 12.24%; NPV ≈ ₦7,973,856 (positive)
B. WACC = 11.80%; NPV ≈ ₦-500,000 (negative)
C. WACC = 12.24%; NPV ≈ ₦5,400,000 (positive)
D. WACC = 13.10%; NPV ≈ ₦6,200,000 (positive)
Correct Answer
A
Correct Option:
WACC = 12.24%; NPV ≈ ₦7,973,856 (positive)

About This Question

This is Neco 2017 Commerce Question 9. It is one of the objective questions from the 2017 Neco Commerce examination.

Difficulty level: Medium .

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