Neco Model Questions Vol1 2018 Commerce Question 35
Practice objective / multiple choice question 35 from the 2018 Neco Model Questions Vol1 Commerce examination.
A small business needs to raise \(₦2{,}000{,}000\). It can either (i) obtain a bank loan at 12% annual interest payable each year for 5 years, with a one‑time processing fee of 2% of the loan amount, or (ii) issue 10,000 ordinary shares at \(₦200\) each, paying an annual dividend of 8% on the share price. The business expects to earn a profit of \(₦500{,}000\) each year for the next 5 years. Assuming the loan principal is repaid at the end of the 5th year and that dividends are paid each year, which source of finance will give the higher total net profit after 5 years, and what is that net profit?
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About This Question
This is Neco Model Questions Vol1 2018 Commerce Question 35. It is one of the objective questions from the 2018 Neco Model Questions Vol1 Commerce examination.
Difficulty level: Medium .
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