Practice neco model questions vol1 commerce 2021 Past Questions

Question 1 View Details

A retailer purchases a batch of goods for $\text{₦}120,000$. He intends to apply a single markup percentage to obtain the marked price. He then offers a first discount of $10\%$ on the marked price, followed by a second discount of $5\%$ on the reduced price. After the discounts, a sales tax of $7.5\%$ is added to the selling price. The retailer wants the final selling price to give him a profit of $20\%$ on his original cost. What markup percentage should he use?

Correct A. 30.6\%

B. 33.3%

C. 28.0%

D. 35.0%

Correct Answer: A

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Question 2 View Details

A transport company charges a fixed loading fee of $\text{₦}500$ per consignment plus a variable rate of $\text{₦}0.80$ per kilometre. If a client ships goods over a distance of $1,500$ km, the company offers a discount on the variable rate provided the distance exceeds $1,200$ km. The client's budget for the total charge (loading fee plus variable charge) is $\text{₦}1,500$. What is the minimum discount percentage that must be obtained on the variable rate for the client to stay within budget?

A. 12.5%

Correct B. 16.7\%

C. 20.0%

D. 14.3%

Correct Answer: B

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Question 3 View Details

A consumer buys a washing machine for $\text{₦}96,000$ and pays a non‑refundable delivery fee of $\text{₦}4,800$. The seller provides a 2‑year warranty that covers defects but not normal wear and tear. After 18 months the consumer discovers a defect covered by the warranty and returns the machine. The seller agrees to replace it with a new unit but will deduct a depreciation charge for the 18 months of use, calculated at 15\% of the original price per year, prorated for the months used. How much must the consumer pay to obtain the replacement unit?

Correct A. ₦26,400

B. ₦24,000

C. ₦30,000

D. ₦21,600

Correct Answer: A

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Question 4 View Details

An advertising agency plans a TV campaign for a market of 2 million households. The current purchase of ad slots delivers 150 gross rating points (GRPs) and reaches 60\% of the households. The agency wants an average frequency of at least 4 exposures per household. The media cost of the current slots is $\text{₦}9,000,000$. Each additional GRP costs the same as the average cost per GRP of the current purchase, and the agency charges a 12\% commission on the total media cost. (a) How many additional GRPs must be purchased to achieve the desired frequency? (b) What is the total cost to the client, including the agency commission?

A. Additional GRPs: 100; Total cost: ₦16,800,000

B. Additional GRPs: 80; Total cost: ₦15,456,000

Correct C. Additional GRPs: 90; Total cost: ₦16,128,000

D. Additional GRPs: 110; Total cost: ₦17,472,000

Correct Answer: C

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Question 5 View Details

An importer intends to purchase 5,000 units of a product priced at US$12 per unit. The exchange rate is $\text{₦}460$ per US$. Import duty is 12\% of the CIF (cost, insurance, freight) value, and a surcharge of 5\% is applied on the duty amount. A value‑added tax (VAT) of 7.5\% is charged on the sum of the CIF value, duty and surcharge. What is the total amount in naira the importer must pay to clear the goods?

A. ₦33,396,000

B. ₦34,713,900

Correct C. ₦33,408,420

D. ₦32,785,350

Correct Answer: C

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Question 6 View Details

An insurer applies a base premium rate of (2\%\) of the insured value. For high‑risk goods a loading of (25\%\) is added to the base premium, and a policy tax of (5\%\) is then levied on the premium after loading. Finally, the insurer gives a discount of (10\%\) on the total amount payable. If the trader pays a final premium of ₦11 812.50, what was the insured value of the goods?

A. 450000

B. 550000

C. 525000

Correct D. 500000

Correct Answer: D

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Question 7 View Details

A warehouse faces an annual demand of $12\,000$ units for a product. The ordering cost is ₦2 000 per order. The holding cost is $20\%$ of the unit cost per year. The unit cost is ₦150, but if the order quantity is at least $1\,000$ units the unit cost falls to ₦140. Determine the order quantity that minimises the total annual cost and state the minimum total cost (rounded to the nearest hundred naira).

A. 1200 units, ₦1650000

B. 1300 units, ₦1723000

C. 1400 units, ₦1805000

Correct D. 1310 units, ₦1716700

Correct Answer: D

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Question 8 View Details

A consumer bought a refrigerator for ₦120 000 with a 2‑year warranty covering repair costs. After 18 months the refrigerator fails. The repair cost is ₦15 000. The consumer is also entitled to depreciation compensation equal to $30\%$ of the original price per year of use. The seller offers either (i) to repair the refrigerator (cost covered) or (ii) to replace it with a new one at a $20\%$ discount off the original price. Assuming the consumer will choose the option that gives the higher monetary benefit, which option should the consumer select and what is the total monetary benefit received (in naira)?

A. Repair; ₦54000

B. Replace; ₦96000

Correct C. Repair; ₦69000

D. Replace; ₦69000

Correct Answer: C

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Question 9 View Details

A company stores three categories of items A, B and C. Their annual demands are $5\,000$, $12\,000$ and $20\,000$ units respectively. The unit holding‑cost rates are ₦5, ₦3 and ₦2 per unit per year. The ordering cost per order is the same for all categories: ₦1 500. The company wishes to apply the EOQ model to each category separately, but the total annual ordering cost for all categories combined must not exceed ₦10 000. Determine feasible order quantities (rounded to the nearest whole unit) for each category that satisfy the constraint while minimising total annual holding cost, and give the resulting total annual cost (excluding purchase cost) in naira.

A. Q_A=2500, Q_B=5000, Q_C=8000; total cost ≈ ₦34000

B. Q_A=2700, Q_B=5400, Q_C=8100; total cost ≈ ₦31500

Correct C. Q_A=2600, Q_B=5200, Q_C=8200; total cost ≈ ₦32500

D. Q_A=2600, Q_B=5200, Q_C=8200; total cost ≈ ₦35000

Correct Answer: C

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Question 10 View Details

A company plans two separate advertising campaigns. The television campaign requires an upfront outlay of ₦5 000 000 and generates a monthly increase in sales revenue of ₦800 000 for 12 months, with a monthly operating cost of ₦100 000. The social‑media campaign requires an upfront outlay of ₦2 000 000 and generates a monthly increase in sales revenue of ₦500 000 for 12 months, with a monthly operating cost of ₦50 000. The corporate tax rate is $30\%$ and the discount rate is 12\% per annum, compounded monthly. Assuming cash flows occur at the end of each month, which campaign has the higher after‑tax net present value and what is that NPV (rounded to the nearest thousand naira)?

A. Television; ₦1800000

B. Television; ₦1558000

C. Social‑media; ₦1400000

Correct D. Social‑media; ₦1558000

Correct Answer: D

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Question 11 View Details

A motor insurance company calculates the premium for a vehicle as follows: (i) a base premium equal to $5\%$ of the insured value; (ii) a loading of $20\%$ of the base premium for high‑risk drivers; (iii) a government tax of $2.5\%$ on the subtotal after loading; (iv) a discount of $10\%$ on the total amount (including tax) for customers who pay annually. If the insured value of a car is ₦$2{,}500{,}000$, what is the annual premium payable?

A. 135000

B. 140250

C. 153750

Correct D. 138375

Correct Answer: D

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Question 12 View Details

Three partners A, B and C start a partnership with capital contributions of ₦$120{,}000$, ₦$180{,}000$ and ₦$200{,}000$ respectively. Profit is to be shared in proportion to capital contributions, but partner C, being senior, receives an additional bonus equal to $5\%$ of the total profit before distribution. If the partnership earned a net profit of ₦$150{,}000$ for the year, how much does each partner receive?

A. A: 34200; B: 51300; C: 57000

B. A: 28500; B: 42750; C: 78750

Correct C. A: 34200; B: 51300; C: 64500

D. A: 36000; B: 54000; C: 67500

Correct Answer: C

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Question 13 View Details

A firm finances a new project using three sources of finance: 40 % equity at a cost of $12\%$ per annum, 35 % bank loan at a cost of $9\%$ per annum (interest is tax‑deductible at a corporate tax rate of $30\%$), and 25 % retained earnings at a cost of $10\%$ per annum (no tax effect). Calculate the project's after‑tax weighted average cost of capital (WACC).

A. 9.15%

Correct B. 9.505%

C. 10.25%

D. 8.80%

Correct Answer: B

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Question 14 View Details

Two listed companies have the following data:\n\n- Company X: current share price ₦$250$, earnings per share (EPS) ₦$20$, dividend payout ratio $40\%$, expected earnings growth rate $8\%$ per year.\n- Company Y: current share price ₦$300$, EPS ₦$25$, dividend payout ratio $30\%$, expected earnings growth rate $12\%$ per year.\n\nAssume dividends grow at the same rate as earnings and that investors require a rate of return of $15\%$ for both stocks.\n\n(a) Compute the dividend per share for each company.\n(b) Using the Gordon growth model, compute the intrinsic value of each share.\n(c) State which stock is undervalued or overvalued relative to its market price.\n(d) If an investor can buy only one share, which should be chosen based on the highest expected total return (capital gain + dividend) over the next year? Show all calculations.

A. Company X

Correct B. Company Y

C. Company Z

D. Company W

Correct Answer: B

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Question 15 View Details

An importer purchases 100 units of a product at $\text{₦}5{,}000$ each. The customs tariff is $12\%$ of the CIF value, and value‑added tax (VAT) of $7.5\%$ is applied on the sum of the CIF value and the tariff. What is the total amount payable in Naira?

A. 591250

B. 564500

Correct C. 602000

D. 597500

Correct Answer: C

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Question 16 View Details

A trader sells shirts at a price of $5{,}000$ Naira each. His monthly fixed costs are $200{,}000$ Naira. When he sells 80 shirts in a month, he records a profit of $120{,}000$ Naira. What is the variable cost per shirt (in Naira)?

Correct A. 1000

B. 1500

C. 1200

D. 800

Correct Answer: A

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Question 17 View Details

A company needs $10{,}000{,}000$ Naira of finance. It can obtain the funds either through a bank loan or by issuing preference shares. Option A - Bank loan: interest rate 12 % per annum payable annually, tax rate 30 % (interest is tax‑deductible), arrangement fee 2 % of the loan amount payable at the start, and the loan is to be repaid in a lump sum after 5 years (interest only each year). Option B - Preference shares: dividend rate 10 % per annum, no tax shield, issue cost 1 % of the proceeds payable at the start, and the shares are perpetual. Assuming the arrangement and issue costs are amortised over the 5‑year period, which source has the lower annual after‑tax cost of finance? State the annual cost as a percentage of the principal for each option and indicate the cheaper source.

A. Both options are equally costly

Correct B. Bank loan

C. Preference shares

D. Cannot be determined

Correct Answer: B

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Question 18 View Details

A firm plans to import $5{,}000$ kg of cocoa beans. The world price is US\$2 per kg. The exchange rate is $410$ Naira per US\$. The bank charges a commission of 1.5 % on the foreign‑currency purchase. Freight and insurance amount to $150{,}000$ Naira. Customs duty is 5 % of the CIF value (cost + insurance + freight) expressed in Naira. Calculate the total landed cost per kilogram in Naira, rounded to the nearest Naira.

A. 945

B. 880

Correct C. 905

D. 1010

Correct Answer: C

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Question 19 View Details

Bank A quotes a nominal annual interest rate of 15 % compounded monthly on a loan. Bank B offers an effective annual rate of 16 %. Which bank provides the cheaper rate? Compute the effective annual rate for Bank A and compare.

A. Cannot determine without additional information

Correct B. Bank B

C. Bank A

D. Both banks have the same effective rate

Correct Answer: B

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Question 20 View Details

A shopkeeper purchases a batch of goods for $480{,}000$ Naira and intends to earn a profit of 20 % on the total cost. What should be the selling price of the batch in Naira?

A. 552000

B. 528000

C. 600000

Correct D. 576000

Correct Answer: D

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Question 21 View Details

A trader buys 500 shares of a company at ₦120 each and pays a commission of 0.5 % on the purchase value. He later sells 300 shares at ₦135 each, also paying a commission of 0.5 % on the sale value. The remaining 200 shares are sold at an unknown price $P$ per share, with the same commission rate of 0.5 %. If the trader wants an overall profit of exactly ₦10,000, what must be the selling price $P$ (in naira) of the remaining shares? Give your answer to two decimal places.

A. 152.91

B. 148.23

C. 155.00

Correct D. 150.77

Correct Answer: D

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Question 22 View Details

A warehouse handles a product whose average monthly demand is 12,000 units, with a standard deviation of 1,200 units per month. Lead time for replenishment is 10 days. The firm desires a 95 % service level ($z = 1.645$). The unit cost is ₦500, the holding cost rate is 15 % of unit cost per year, and the ordering cost is ₦2,500 per order. (a) Determine the safety stock required. (b) Calculate the economic order quantity (EOQ) that includes this safety stock. (c) Compute the annual total cost (ordering + holding + purchase) using the order quantity from part (b).

A. Safety stock ≈ 1,140 units; EOQ ≈ 3,150 units; Order quantity ≈ 4,300 units; Annual total cost ≈ ₦72,900,000

B. Safety stock ≈ 1,200 units; EOQ ≈ 3,050 units; Order quantity ≈ 4,250 units; Annual total cost ≈ ₦73,500,000

Correct C. Safety stock ≈ 1,140 units; EOQ ≈ 3,098 units; Order quantity ≈ 4,238 units; Annual total cost ≈ ₦72,243,875

D. Safety stock ≈ 1,080 units; EOQ ≈ 3,200 units; Order quantity ≈ 4,280 units; Annual total cost ≈ ₦71,800,000

Correct Answer: C

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Question 23 View Details

A business needs to raise ₦5,000,000. It can either obtain a bank loan at 12 % simple interest per annum for 3 years, with a processing fee of 2 % of the loan amount, or issue 10 % debentures for the same amount, with an issue cost of 1 % of the amount and interest payable annually at 10 % on the principal. Which source of finance results in the lower total cost over the 3‑year period, and what is that total cost? State the total cost for each option.

A. Debentures cheaper; total cost debentures = ₦1,600,000; bank loan = ₦1,900,000

B. Bank loan cheaper; total cost debentures = ₦1,550,000; bank loan = ₦1,800,000

Correct C. Debentures cheaper; total cost debentures = ₦1,550,000; bank loan = ₦1,900,000

D. Debentures cheaper; total cost debentures = ₦1,550,000; bank loan = ₦2,000,000

Correct Answer: C

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Question 24 View Details

A retailer purchases a product for ₦800 and sells it for ₦1,200. What is the profit percentage based on the cost price? Express your answer as a percentage to the nearest whole number.

A. 75

Correct B. 50

C. 40

D. 60

Correct Answer: B

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Question 25 View Details

A wholesaler buys goods at a unit cost of ₦500. Fixed monthly costs amount to ₦150,000. Variable selling expenses are normally 5 % of sales revenue, but for a large retailer who receives a 10 % discount on the selling price, the variable expense falls to 3 % of sales revenue. If the regular selling price is ₦800 per unit, determine the minimum number of units the wholesaler must sell to the large retailer each month to achieve a profit of at least ₦50,000 after giving the discount.

A. 1100

B. 1020

C. 950

Correct D. 1009

Correct Answer: D

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