Neco Model Questions Vol1 2024 Commerce Question 8

Practice essay / theory question 8 from the 2024 Neco Model Questions Vol1 Commerce examination. This question covers Sources of Finance .

Neco Model Questions Vol1 2024 Commerce Essay / Theory

Topic: Sources of Finance

Question 8 NECO_MODEL_QUESTIONS_VOL1 • 2024 • COMMERCE • essay

Alpha Manufacturing Ltd, a medium‑size firm, recorded an earnings before interest and tax (EBIT) of ₦30 million for the last financial year. The company’s current book‑value equity is ₦120 million and it has no existing debt. To fund a plant‑expansion project, Alpha needs an additional ₦150 million. The management is considering two financing alternatives:

Question Parts

( a )

List four major sources of finance for businesses and classify each as internal or external.

( b )

Using the data below, compute the weighted average cost of capital (WACC) for each of the two financing options. Show all steps. Option 1: 60 % bank loan at 12 % interest (tax rate 30 %) and 40 % retained earnings (cost of retained earnings assumed 0 %). Option 2: 50 % new equity at a required return of 15 % and 50 % debentures at 10 % interest (tax rate 30 %).

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About This Question

This is Neco Model Questions Vol1 2024 Commerce Question 8. It is one of the essay questions from the 2024 Neco Model Questions Vol1 Commerce examination.

The question covers Sources of Finance .

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