Neco 2025 Commerce Question 7

A firm needs \(\text{₦}2,000,000\) for expansion. It can raise the required amount by a bank loan at 14% p.a., by issuing 10% preference shares, and by retaining earnings. The cost of retained earnings is taken as 8% p.a. The firm decides to use 40% of the required funds as a loan, 35% as preference shares and the remaining 25% as retained earnings. The loan carries a 2% arrangement fee on the amount borrowed and the preference shares have a flotation cost of 5% of the issue amount. Assuming these fees are one‑time and not recurring, calculate the overall annual cost of finance as a percentage of the total funds required. Express your answer to one decimal place.