Waec Model Questions Vol1 2022 Commerce Question 33

Practice objective / multiple choice question 33 from the 2022 Waec Model Questions Vol1 Commerce examination.

Waec Model Questions Vol1 2022 Commerce Objective / Multiple Choice Medium Difficulty
Question 33 WAEC_MODEL_QUESTIONS_VOL1 • 2022 • COMMERCE • objective

A small business requires ₦5,000,000 for expansion. It can either (i) obtain a bank loan at 12% per annum payable annually with a one‑time processing fee of 2% of the loan amount, or (ii) raise equity by issuing shares at ₦500 each, promising an annual dividend yield of 8%. The expansion is expected to generate an additional profit of ₦800,000 each year for the next 5 years. Which source of finance gives the higher net profit after financing costs over the 5‑year period, and by how much does it exceed the alternative?

Answer Options

A. Loan is better; it gives ₦300,000 more net profit than equity.
B. Equity is better; it gives ₦950,000 more net profit than the loan.
C. Equity is better; it gives ₦1,250,000 more net profit than the loan.
Correct Answer D. Equity is better; it gives ₦1,100,000 more net profit than the loan.
Correct Answer
D
Correct Option:
Equity is better; it gives ₦1,100,000 more net profit than the loan.

About This Question

This is Waec Model Questions Vol1 2022 Commerce Question 33. It is one of the objective questions from the 2022 Waec Model Questions Vol1 Commerce examination.

Difficulty level: Medium .

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