Futuristic Electronic Technologies (FET) recently released a new advanced electronic micro system to be used by financial institutions, large corporations, and governments to process and store financial data, such as taxes and automatic payroll payments. Even though FET developed the technology used in the creation of the product, FETs competitors are expected to possess similar technology soon. To beat the competition to the market, FET introduced its new micro system a little earlier than originally planned. In fact, laboratory testing had not been fully completed before the product reached the market. The tests are complete now, and the final results suggest the micro system might be flawed with respect to how some data are retrieved and processed. The tests are not conclusive, though, and even if additional testing proves that a flaw does exist, according to FET, it is of minuscule importance because the problem seems to occur for only one out of 100 million retrieval and processing attempts. The financial ramifications associated with the flaw are unknown at this time.

Assume that you are one of FETs senior executives whose annual salary is based on the performance of the firms common stock. You realise that if FET recalls the affected micro system, the share price will suffer; thus, your salary for the year will be less than you expected.

To complicate matters, you just purchased an expensive house based on your salary expectations for the next few years - expectations that will not be realised unless the new micro system is a success for FET. As one of the senior executives, you will help determine what course of action FET will follow with respect to the micro system.

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5.2 The Board of Directors of Triple K Limited is comparing two different capital structures: an all-equity plan and a levered plan. Under the all-equity plan, Triple K would have 10 000 000 shares in issue. Under the levered plan, there would be 5 000 000 shares and 10% perpetual debt worth R200 million. The tax rate is 25%.