Neco 2019 Commerce Question 26

Practice objective / multiple choice question 26 from the 2019 Neco Commerce examination.

Neco 2019 Commerce Objective / Multiple Choice Medium Difficulty
Question 26 NECO • 2019 • COMMERCE • objective

To finance a project the firm needs exactly \(\text{₦}5,000,000\). It can raise funds from three sources: a bank loan at 12% per annum, issuing new shares that require a 5% dividend, and retained earnings which carry no cost. At most 40% of the total may come from the loan and at least 30% must be equity (shares + retained). Retained earnings are available up to \(\text{₦}1,800,000\). Determine how much should be raised from each source so that the weighted average cost of capital (WACC) is minimum, and state the minimum WACC (as a percentage).

Answer Options

Correct Answer A. Loan = ₦0, Shares = ₦3,200,000, Retained = ₦1,800,000, Minimum WACC = 3.2%
B. Loan = ₦500,000, Shares = ₦2,500,000, Retained = ₦2,000,000, Minimum WACC = 4.0%
C. Loan = ₦1,000,000, Shares = ₦3,000,000, Retained = ₦1,000,000, Minimum WACC = 4.2%
D. Loan = ₦2,000,000, Shares = ₦2,000,000, Retained = ₦1,000,000, Minimum WACC = 5.5%
Correct Answer
A
Correct Option:
Loan = ₦0, Shares = ₦3,200,000, Retained = ₦1,800,000, Minimum WACC = 3.2%

About This Question

This is Neco 2019 Commerce Question 26. It is one of the objective questions from the 2019 Neco Commerce examination.

Difficulty level: Medium .

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