Neco 2020 Commerce Question 10

Practice objective / multiple choice question 10 from the 2020 Neco Commerce examination.

Neco 2020 Commerce Objective / Multiple Choice Medium Difficulty
Question 10 NECO • 2020 • COMMERCE • objective

A business needs \(\text{₦}2,000,000\). It can obtain financing by:\n\n1. A bank loan at 12\% per annum payable monthly over 5 years (interest on a reducing balance).\n2. Hire‑purchase: 20\% down‑payment, the balance financed at 15\% simple interest per annum for 5 years, with equal annual instalments.\n3. Issuing 10\% preference shares, dividend payable annually, no redemption.\n\nAssuming the project requires the full \(\text{₦}2,000,000\) at the start, compute the total cost over the 5‑year period for each option (interest or dividend paid) and state which option is cheapest.

Answer Options

A. Bank loan total interest ≈ ₦650,000; Hire‑purchase total interest = ₦1,300,000; Preference shares total dividend = ₦950,000; Cheapest option: preference shares
B. Bank loan total interest ≈ ₦600,000; Hire‑purchase total interest = ₦1,250,000; Preference shares total dividend = ₦1,100,000; Cheapest option: bank loan
Correct Answer C. Bank loan total interest ≈ ₦670,000; Hire‑purchase total interest = ₦1,200,000; Preference shares total dividend = ₦1,000,000; Cheapest option: bank loan
D. Bank loan total interest ≈ ₦720,000; Hire‑purchase total interest = ₦1,150,000; Preference shares total dividend = ₦1,050,000; Cheapest option: hire‑purchase
Correct Answer
C
Correct Option:
Bank loan total interest ≈ ₦670,000; Hire‑purchase total interest = ₦1,200,000; Preference shares total dividend = ₦1,000,000; Cheapest option: bank loan

About This Question

This is Neco 2020 Commerce Question 10. It is one of the objective questions from the 2020 Neco Commerce examination.

Difficulty level: Medium .

View More Neco 2020 Commerce Questions More Neco Practice Questions Back to Questions

Master the Exam!

You've seen a preview, but there are thousands more questions plus AI tutor to break down complex solutions.

Unlock Full Access Available for Android & Windows
Chat with Support