Neco 2024 Commerce Question 8

Alpha Manufacturing Ltd intends to expand its production capacity and requires an additional ₦20,000,000 of finance. The following sources are available: - Retained earnings: ₦5,000,000 (cost of capital = 0%). - Bank loan: interest rate 12% per annum, no flotation cost. - Debentures: interest rate 10% per annum, flotation cost 2% of the issue amount. - New equity shares: issue price ₦200 per share, expected dividend yield 8% per annum, flotation cost 5% of the issue amount. The firm’s financing policy states that at least 30% of the total finance must be raised through equity, and the proportion of debt (bank loan + debentures) must not exceed 50% of the total finance. Answer the following: