Neco Model Questions Vol1 2017 Commerce Question 22
Practice objective / multiple choice question 22 from the 2017 Neco Model Questions Vol1 Commerce examination.
A retailer needs \(\text{₦}2,000,000\) to purchase inventory. He can obtain the funds by either (A) a bank loan at \(10\%\) per annum payable annually, with an arrangement fee of \(2\%\) of the loan amount, or (B) issuing 5‑year debentures at \(8\%\) per annum payable annually, with an underwriting commission of \(1.5\%\) of the issue amount and a flotation cost of \(\text{₦}30,000\). For both options the principal is repaid at the end of the 5‑year period and interest is paid each year. Which option results in a lower total cash outflow over the 5 years? State the cheaper option.
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About This Question
This is Neco Model Questions Vol1 2017 Commerce Question 22. It is one of the objective questions from the 2017 Neco Model Questions Vol1 Commerce examination.
Difficulty level: Medium .
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