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Scenario: Oceanic Airlines' capital structure is 80% equity and 20% debt. Its cost of equity is 10%; its after-tax cost of debt is 5%. What

Scenario: Oceanic Airlines' capital structure is 80% equity and 20% debt. Its cost of equity is 10%; its after-tax cost of debt is 5%.

What is its WACC?

According to the arbitrage argument for the Independence Hypothesis (given standard MM assumptions), should Oceanic borrow to buy back stock? Why/why not (Explain it like I'm 5 years old)?

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