WACC Analysis

The WACC analysis must be done to the determine the optimal capital structure to repurchase
the share. The WACC that will be choose is the lowest WACC from the combination of
capital structure. So, a few alternatives are suggested to determine the combination of capital
structure for AirAsia to repurchase their share to boost the share price.

ALTERNATIVE DEBT RATIO EQUITY RATIO

1 80% 20%

2 60% 40%

3 50% 50%

4 40% 60%

5 20% 80%

SHARE REPURCHASE = 10% X 2,782,970,000

= 278,297,000

SHARE REPURCHASE = DEBT/SHARE PRICE

278,297,000 = DEBT/ RM1.31

DEBT = RM 364,569,070

ALTERNATIVE 1 : (80% DEBT and 20% EQUITY)

i) Wd = [RM10,235,579,000 + (80%XRM364,569,070)] / (RM15,051,002,070)

= 0.7 @ 70%

ii) We = [RM 4,450,854,000 + (20%XRM364,569,070)] / (RM15,051,002,070)

= 0.3 @ 30%

iii) WACC = (Wd)(Rd)(1-T) + (We)(Re)

 = (70%)(3.16%) + (30%)(13.52%)

= 6.27%

ALTERNATIVE 2 : (60% DEBT and 40% EQUITY)

i) Wd = [RM10,235,579,000 + (60%XRM364,569,070)] / (RM15,051002,070)

= 0.695 @ 69.5%

ii) We = [RM 4,450,854,000 + (40%XRM364,569,070)] / (RM15,051,002,070)

= 0.305 @ 30.5%

iii) WACC = (Wd)(Rd)(1-T) + (We)(Re)

= (69.5%)(3.16%) + (30.5%)(13.52%)

= 6.32%

ALTERNATIVE 3 : (50% DEBT and 50% EQUITY)

i) Wd = [RM10,235,579,000 + (50%XRM364,569,070)] / (RM15,051,002,070)

= 0.692 @ 69.2%

ii) We = [RM 4,450,854,000 + (50% XRM364,569,070)] / (RM15,051,002,070)

= 0.308 @ 30.8%

iii) WACC = (Wd)(Rd)(1-T) + (We)(Re)

= (69.2%)(3.16%) + (30.8%)(13.52%)

= 6.35%

ALTERNATIVE 4 : (40% DEBT and 60% EQUITY)

i) Wd = [RM10,235,579,000 + (40%XRM364,569,070)] / (RM15,051,002,070)

= 0.69 @ 69%

ii) We = [RM 4,450,854,000 + (60% XRM364,569,070)] / (RM15,051,002,070)

= 0.31 @ 31%

iii) WACC = (Wd)(Rd)(1-T) + (We)(Re)

= (69%)(3.16%) + (31%)(13.52%)

= 6.37%

ALTERNATIVE 5 : (20% DEBT and 80% EQUITY)

i) Wd = [RM 10,235,579,000 + (20% X RM364,569,070)] / (RM15,051,002,070)

= 0.685 @ 68.5%

ii) We = [RM 4,450,854,000 + (80% X RM364,569,070)] / (RM15,051,002,070)

= 0.315 @ 31.5%

iii) WACC = (Wd)(Rd)(1-T) + (We)(Re)

= (68.5%)(3.16%) + (31.5%)(13.52%)

= 6.42%

As we know, AirAsia Sdn Bhd must analyses the optimal capital structure by
choosing the combination of capital structure that yields the lowest WACC. From the analysis
above, we can conclude that the AirAsia Sdn Bhd should choose the alternative 1, which the
RM364,569,070 to repurchased the share funded by 80% debt and 20% equity and give the
lowest company new WACC with 6.27% than other alternative. Form the analysis, we
determine that the WACC of alternative 2 is 6.32%. The WACC for alternative 3, 4 and 5
alternative 4 are 6.35%, 6.37% and 6.42% respectively. The new WACC from all alternatives
is higher than WACC in year 2015 so, AirAsia Sdn Bhd must choose the lowest WACC
among the alternative that is from alternative 1.