Neco Model Questions Vol1 2020 Commerce Question 8

Practice essay / theory question 8 from the 2020 Neco Model Questions Vol1 Commerce examination. This question covers Sources of Finance .

Neco Model Questions Vol1 2020 Commerce Essay / Theory

Topic: Sources of Finance

Question 8 NECO_MODEL_QUESTIONS_VOL1 • 2020 • COMMERCE • essay

ABC Manufacturing Plc plans to expand its production capacity and requires a total of ₦500 million. The management is considering a mix of internal and external sources of finance.

Question Parts

( a )

Identify three internal and three external sources of finance that ABC Manufacturing could use for the expansion.

( b )

For each source listed in part (a), discuss one advantage and one limitation.

( c )

Assume ABC decides to raise the external portion of ₦300 million as follows: ₦150 million through a bank loan at 12 % per annum payable annually for 5 years with a one‑time arrangement fee of 2 % of the loan amount, and ₦150 million through 10‑year debentures bearing 10 % interest per annum, with a one‑time issue cost of 3 % of the face value. Calculate the total cost of each external source over the 5‑year period and state which is cheaper on a per‑year basis.

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About This Question

This is Neco Model Questions Vol1 2020 Commerce Question 8. It is one of the essay questions from the 2020 Neco Model Questions Vol1 Commerce examination.

The question covers Sources of Finance .

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