T1 EIC 8 (Tutorial)
Vince, finishes the meeting
with the following discussion ...

Management does not like us presenting only problems. So rather
than do nothing, let’s think outside of the box and provide several solutions
for consideration.

Which of the following solutions are viable if Ke increases by
175 basis points? (Select
all correct answers only, selecting a wrong answer will result in a mark penalty)

Question

T1 EIC 8 (Tutorial) 
  Vince, finishes the meeting
with the following discussion ...

Management does not like us presenting only problems. So rather
than do nothing, let’s think outside of the box and provide several solutions
for consideration.

Which of the following solutions are viable if Ke increases by
175 basis points?  (Select
all correct answers only, selecting a wrong answer will result in a mark penalty)

Answer

Change WACC by borrowing an additional $2 billion in debt to be used to buy-back $2 billion in equity. Share buy-backs are used to reduce equity in this way in industry. (Calculate the new WACC)

Answer

Sourcing more assets to consider other than the ones provided.

Answer

Sourcing more capital at the current WACC so that the A380 becomes affordable.

Answer

Change WACC by raising another $1 billion in equity. (Calculate the new WACC)

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T1 EIC 8 (Tutorial) Vince, finishes the meeting with the following discussion...

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