What is the weighted average cost of capital for a corporation that finances an expansion project using 35% retained earnings and the rest as debt capital? Assume the interest rates are 11% for equity financing and 23% for debt financing. The weighted average cost of capital is 5785 0 %. Solution WACC = cost of equity x equity percentage + cost of debt x debt percentage WACC = 23% x(1 - 35%) + 11% x 35% = 18.8%.

1. What measures have the EU (or member nations) taken to mitigate the current economic
problems? What is your economic outlook for the EU nations (you may address the EU as a
whole or choose a specific member nation)?
Solution
In last few years,The EU financial and economic policies have been moulded under the
supervision and ratification of the member states to combat the series of economic challenges
that the region has confronted consistently.In this context,we can divide these recent challenges
according to the events that occured in recent past and discuss some of the economic remmedies
that had implemented by the member states either conjointly or separately.Evidently,the
challenges that the EU had faced recently majorly include Brexit issue,Financial Crisis that
culminated in 2008 and sustained,immigration issues and refugee crisis,capital/financial market
crisis and foreign and security policies and the recent policies implemented by the region against
these and potential crisis in the future will be discussed in further details.
Brexit Issue
Considering the apprehension of an impending economic collapse due to UK's exit from the
EU,there has been much emphasis on resistive policy mechanism from the part of the
administration.It had been apprehended that as Britain has traditionally been a strong economic
force of EU with considerably high contribution of overall GDP in EU,source of high export
revenue for EU as a whole,major source employment to the EU region,attracting significant
foreign investment due to the existence of so many top shot MNCs in Britain and its rapid GDP
growth also contributed notably to the growth and progress of the entire EU
region.Thus,expectedly,the apprehension became stronger that Brexit would lead to massive
economic collapse in EU region through decline in overall GDP nad GDP growth rate,lower
employment rate,restrictions on free flow of capital in the region,undersirable international trade
impacts,reduction in foreign capital and financial investment in the region and so forth.
However,the impact of Brexit has been clearly evident in UK with high inflation rate,decrease in
consumer spending and slow production and output in the country,some of the intial resistive
fiscal and monetary policies adopted by EU could resist the some of the expected
damages.Favorable monetary and labor market policies have restricted the extent of
macroeconomic crisis within the EU nations due to Brexit.In this regard,certain expansionary
monetary and fiscal relief meausers undertaken have been able to restore the production level
and consumer spending or at least ensure improvement amidst the economic threats of
brexit.Furthermore,low oil prices and consistent weaker Euro have safeguarded many EU nations

2. against the negative trade impacts of Brexit where other member nations are able to continue
high levels of trade volumes with the rest of the world.However,further challenges do lie in
strenghtening certain bilateral or regionalized trade agreements that EU had involved in such as
EU-Canada Trade Agreement(ECTA),Trans-Atlantic Investment Partnership(TAIP) etc. through
lower trade restrictions like tariff rates and quota.Modification of bilateral and regional trade
treaties would ensure further improvement of Balance of Payments and trade relations for
various EU members thereby safeguarding them against any negative trade consequences due to
Brexit.
Consistent Financial Crisis
Following the massive economic and fiscal crisis in Greece and multiple other that ensued in the
region in more recent times,the EU nations have embraced a strong commitment to maintain a
careful and more coordinated fiscal and monetary mechanism to work in cooperation.These
coordinated measures mainly include a more careful and rational fiscal structure to restrict
excess and unnecessary fiscal expenditure by EU nations and setting short term fiscal goals to
prevent potential fiscal deficits,putting priority on reducing or checking government debts
through a more rational fiscal expenditure structure,protecting overall savings by banks and
households,maintain a consistent solvency of both private and public banks to ensure a smooth
credit flow,higher regulation of the banking system in the region to prevent any further collapse
of the credit system and so forth.
In light of the fiscal crisis in Greece,a higher emphasis has been given particularly on fiscal
reforms in the EU region mainly to restrict public debts,fiscal deficit,excessive expenditure and
ensuring stable fiscal revenue as any unchecked fiscal crisis can evidently lead to a larger
economic collapse through decline in GDP,employment,consumer spending,production level and
high inflation.
Refugee Crisis
Recent influx of political and religious refugees mainly from middle east and African nations has
practically caused several challenges such as job crisis in many EU nations such as
Germany,France,Belgium etc.,accomodation issues for growing migration,problems of terrorism
etc.Following the EU-Turkey migration deal in 2015 and closing of Balkan route in 2016,the
refugee influx abated a bit.Furthermore, the migration from Syria and Afghanistan also dropped
by 80% after 2016.The EU has also implemented measures to control the external Schengen
border and initiated stricter immigration and customs policies to restrict unauthorized migrations
which has also increased in recent times along with refugee influx.Many of the EU nations such
as Germany,Netherlands and France have collectively favored an organized and uniformed
immigration policy to ward off the negative economic and political consequences of refugee
crisis through diplomatic dialogues with African nations to consider the migratory preasures that

3. might come in the following years.
Reforming the banking system
In view of the financial crisis during late 2000s and early 2010s,there has been a greater need for
a strong and organized banking regulatory system in the EU.To ensure a more transparent and
proper way of banking functioning it was necessary to break the viscous circle between the
banks and soverigign money or credit lenders.In this regard,several policy reforms have been
adopted which mainly encompass initiation of European banking supervision under a single
supervisory mechanism,higher regulations to check the unscupulous activities of single or private
money/credit lenders,partial centralization of bank resolution decisions under a single resolution
board and a single resolution fund.Under the Bank Recovery and Resolution Directive(BRRD)
undertaken in 2014, a more strict and regulated banking reform system has been adopted which
not only protects commercial banks from financial insolvency or breaking the viscous circle
between banks and sovereign money/credit lenders but also to check that any government is not
using the banks as their own source of funds and hence,misutilizing public funds.
Capital Market Union
With major attention to capital market crisis and restriction of free flow of capital or financial
mobility among nations due to Brexit,higher emphasis is directing in strenghtening the Capital
Market Union(CMU) which had been initiatied in 2014.It calls for diversification and
fragmentation of the sources of financial and capital hubs to protect against any financial or
capital market crisis due to events such as Brexit.As London had been a major hub for financial
MNCs and big shot firms and foremost source of financial and capital investment for the entire
EU region,it has been apprehended that Brexit would cause a major financial collapse for the
entire region.
Ongoing discussions have focused on reinstating the European and Securities and Market
Authorities (ESMA) set up in 2011 which calls for enhancing its reponsibilities in the field
auditing financial firms to resist financial corruption at the firm level and enforcement of
uniformed financial reporting standards across EU.This would essentially lead to a more
transparent functioning of the financial firms within the EU and also safeguard the firms against
any inclement economic event such as Brexit.
Looking Forward
Despite many multiple economic and political challenges,the major EU nations such as
Germany,Netherlands,France,Belgium etc have been able to sustain a commendable economic
growth mainly through intrernal policy reformations such as more coordinated and consolidated
fiscal and monetary resolutions,working towards improving trade relations with rest of the
world,reformation of immigration policies and modification of the capital/financial market.These
are some of the countries that have been affected by the negative impacts of Brexit mainly

4. through negative trade impacts such as automobile industry in Germany,Woods and logistics
industry in Netherlands and many more.However,through these above mentioned internal policy
reformations within their own country they are able to lower the extent of the crisis.
Additionally,amidst the financial and refugee crisis many of the EU nations have progressively
tackled the fiscal crisis and refugee crisis through some active diplomatic discussions and
aggressive fiscal reforms in a coordinated way.Hence,EU has certainly developed a higher
resistive power in recent times which will benefit the economic progress of the region in long
term future.It is true that the EU region mainly consists of the most prominent developed nations
in the world but nonetheless,prompt,careful and prudent reformation undertakings have
constructed the economic past of the region and could well define its economic future both in
near and distant future.