Neco Model Questions Vol1 2017 Commerce Question 6

Practice objective / multiple choice question 6 from the 2017 Neco Model Questions Vol1 Commerce examination.

Neco Model Questions Vol1 2017 Commerce Objective / Multiple Choice Medium Difficulty
Question 6 NECO_MODEL_QUESTIONS_VOL1 • 2017 • COMMERCE • objective

A firm requires total financing of \(\text{₦}5{,}000{,}000\). It can raise funds through a loan at 8% interest, equity at 12% cost, and retained earnings (cost 0%). The loan amount cannot exceed 40% of the total financing and the overall weighted average cost of capital (WACC) must not exceed 9%. Assuming the firm uses the maximum permissible loan and the minimum amount of retained earnings needed to satisfy the WACC constraint, determine (a) the maximum loan amount, (b) the minimum retained earnings required, and (c) the equity amount that will be raised.

Answer Options

A. (a) ₦2,000,000; (b) ₦500,000; (c) ₦2,500,000
B. (a) ₦2,000,000; (b) ₦600,000; (c) ₦2,400,000
Correct Answer C. (a) ₦2,000,000; (b) ₦583,333.33; (c) ₦2,416,666.67
D. (a) ₦1,800,000; (b) ₦583,333.33; (c) ₦2,616,666.67
Correct Answer
C
Correct Option:
(a) ₦2,000,000; (b) ₦583,333.33; (c) ₦2,416,666.67

About This Question

This is Neco Model Questions Vol1 2017 Commerce Question 6. It is one of the objective questions from the 2017 Neco Model Questions Vol1 Commerce examination.

Difficulty level: Medium .

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