Neco Model Questions Vol1 2025 Commerce Question 37

Practice objective / multiple choice question 37 from the 2025 Neco Model Questions Vol1 Commerce examination.

Neco Model Questions Vol1 2025 Commerce Objective / Multiple Choice Medium Difficulty
Question 37 NECO_MODEL_QUESTIONS_VOL1 • 2025 • COMMERCE • objective

An enterprise needs net proceeds of \(₦5,000,000\). It can either (i) obtain a bank loan at \(12\%\) per annum payable annually, repaid in equal principal installments over 3 years, or (ii) issue debentures at \(10\%\) per annum with a flotation cost of \(5\%\) of the issue amount. For the debentures the interest is paid each year and the principal is repaid at the end of year 3. Which source of finance results in the lower total cost over the 3‑year period? Show all calculations.

Answer Options

A. Bank loan; total interest = ₦1,200,000 versus debentures total cost ≈ ₦1,750,000
Correct Answer B. Bank loan; total interest = ₦1,200,000 versus debentures total cost ≈ ₦1,842,105
C. Bank loan; total interest = ₦1,300,000 versus debentures total cost ≈ ₦1,800,000
D. Bank loan; total interest = ₦1,150,000 versus debentures total cost ≈ ₦1,900,000
Correct Answer
B
Correct Option:
Bank loan; total interest = ₦1,200,000 versus debentures total cost ≈ ₦1,842,105

About This Question

This is Neco Model Questions Vol1 2025 Commerce Question 37. It is one of the objective questions from the 2025 Neco Model Questions Vol1 Commerce examination.

Difficulty level: Medium .

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