Neco Model Questions Vol1 2023 Commerce Question 38

Practice objective / multiple choice question 38 from the 2023 Neco Model Questions Vol1 Commerce examination.

Neco Model Questions Vol1 2023 Commerce Objective / Multiple Choice Medium Difficulty
Question 38 NECO_MODEL_QUESTIONS_VOL1 • 2023 • COMMERCE • objective

A small business needs to raise ₦10,000,000. It can obtain finance from a bank loan at 12% per annum and from issuing shares at a cost of equity of 18% per annum. The proportion of the loan must not exceed 60% of the total capital. To minimise the overall cost of capital, how much should be raised from the bank and how much from shares, and what is the resulting weighted average cost of capital (WACC) expressed as a percentage?

Answer Options

A. Bank loan: ₦6,000,000; Shares: ₦4,000,000; WACC: 13.8%
B. Bank loan: ₦4,800,000; Shares: ₦5,200,000; WACC: 14.7%
Correct Answer C. Bank loan: ₦6,000,000; Shares: ₦4,000,000; WACC: 14.4%
D. Bank loan: ₦5,000,000; Shares: ₦5,000,000; WACC: 15.0%
Correct Answer
C
Correct Option:
Bank loan: ₦6,000,000; Shares: ₦4,000,000; WACC: 14.4%

About This Question

This is Neco Model Questions Vol1 2023 Commerce Question 38. It is one of the objective questions from the 2023 Neco Model Questions Vol1 Commerce examination.

Difficulty level: Medium .

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