The current stock price of Wolverine airlines is $40. If Wolverine issues equity,Wolverine's management anticipates that the market will reactnegativelyand thatWolverine will only be able to sell the new shares for $35 per share. However, Wolverineairlines management knows that if they do not issue equity their stock will soon go up toits fair fundamental value of $50 per share. Management knows this because they have inside information that future earnings will be higher than the market expects. CurrentlyWolverine has 100,000 shares outstanding. Wolverine is considering investing in a new airplane that will cost them $350,000. They anticipate that the present discounted valueof increased earnings from purchasing the new plane is $450,000.

a.If Wolverine had the cash available to purchase the new plane, should it make thepurchase?-(Don't overthink this one, it is straightforward)

b.If Wolverine needs to finance the purchase of the new plane with equity, will it make sensefor them to purchase theplane?-(This is challenging and takes a little more thought)