Neco 2022 Commerce Question 21
Practice objective / multiple choice question 21 from the 2022 Neco Commerce examination.
An entrepreneur needs \(\text{₦5,000,000}\) for a 3‑year project. He can either (i) obtain a bank loan at \(12\%\) per annum payable annually, with interest calculated on the full amount each year and the principal repaid at the end of year\,3; or (ii) issue \(10\%\) debentures with a flotation cost of \(2\%\) of the issue amount, where interest is \(10\%\) per annum payable semi‑annually (i.e., \(5\%\) each half‑year) on the full amount, and the principal is repaid at the end of year\,3. Which source results in the lower total cash outflow over the 3‑year period? Show all calculations.
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About This Question
This is Neco 2022 Commerce Question 21. It is one of the objective questions from the 2022 Neco Commerce examination.
Difficulty level: Medium .
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