Neco 2023 Commerce Question 8

Practice essay / theory question 8 from the 2023 Neco Commerce examination. This question covers Sources of Finance .

Neco 2023 Commerce Essay / Theory
Topic: Sources of Finance
Question 8 NECO • 2023 • COMMERCE • essay

A medium‑size manufacturing firm plans to expand its production capacity and estimates that it needs ₦15,000,000 for the project.

Question Parts

( a )
Distinguish between short‑term and long‑term sources of finance. Give two examples of each and state one advantage and one disadvantage for every example.
( b )
The firm decides to raise part of the required funds through a bank loan at 12% per annum payable over 5 years, and the remaining amount by issuing 10,000 debentures each with a face value of ₦500 and a coupon rate of 12% payable annually. Calculate the total annual interest expense the firm will incur after the financing is in place.
( c )
Discuss two non‑financial factors the firm should consider when choosing between the bank loan and the debenture issue.
( d )
If the firm’s projected profit before interest and tax (EBIT) for the next year is ₦4,000,000, assess whether the firm will be able to meet its interest obligations under the proposed financing. Show your calculation and give a brief conclusion.

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About This Question

This is Neco 2023 Commerce Question 8. It is one of the essay questions from the 2023 Neco Commerce examination.

The question covers Sources of Finance .

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