Neco 2021 Commerce Question 8

EcoPack Ltd, a medium‑scale manufacturer of biodegradable packaging, plans to expand its production capacity. The expansion requires a total investment of ₦150,000,000. The management wants to finance the project using a mix of internal funds, bank loan, debentures and equity. The following information is available: - Retained earnings available: ₦30,000,000 (can be used without cost). - Bank loan: interest rate 12% per annum, maximum amount that can be borrowed is ₦70,000,000. - Debentures: 10% annual coupon, flotation cost of 5% of the amount raised, and can be issued up to ₦50,000,000. - New equity: investors require a minimum rate of return of 15%. - The firm’s policy limits total debt (bank loan + debentures) to no more than 40% of the total capital employed. - The project must achieve a minimum weighted average cost of capital (WACC) of 12% to be acceptable. Assume that all costs are calculated on an annual basis and that the retained earnings are considered as equity with zero cost.