AA is considering changing its capital structure. The following information is currently relevant to AA:

The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA's change in capital structure are true under Modigliani and Miler's capital structure theory with tax.

• A.The WACC will decrease below 7.6%
• B.The WACC increase above 7.6
• C.The cost of equity will decrease below 10%
• D.The cost of debt will increase above 4%
• E.The cost of equity will increase above 10%
• F.The cost of debt remain unchanged at 4%

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An aerospace company is planning to diversify into car manufacturing.
Relevant data:

What is the the cost of equity to be used in the WACC for the project appraisal?
Give your answer in percentage, as a whole number.

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A company's statement of financial position includes non-current assets which are leased, the tax regime follows the accounting treatment.
Which cash flows should be discounted when evaluating the cost of lease finance?

• A.Lease payments and straight-line accounting depreciation.
• B.Lease payments, implied interested and straight-line accounting deprediation.
• C.Lease payments, tax relief on implied interest and tax relief on straight-line account depreciation.
• D.Lease payments and implied interest.

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Select the category of risk for each of the descriptions below:

Correct Answer:

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Which THREE of the following are likely to be strategic reasons for a horizontal acquisition?

• A.Reduction of competition
• B.Reduction of risk by building a larger portfolio
• C.To secure key parts of the value chain
• D.Acquisition of an undervalued company
• E.To achieve economies of scale

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