FINANCIAL MANAGEMENT |
Scenario
You are a financial consultant engaged by Solara Industries, a Malaysian solar panel manufacturing firm with aggressive expansion goals and rising competition from global players. Solara is evaluating a large-scale capital investment in advanced production technology, and simultaneously considering a shift in its dividend policy to reinvest more earnings.
Your task
Prepare a professional advisory report for Solara’s board covering the following areas :
1. Capital Budgeting Evaluation. ( 25 MARKS )
– Assess the viability of the investment project using NPV, IRR, and Payback Period.
– Include sensitivity analysis for fluctuations in discount rate and operating cash flows.
– Recommend whether the project should proceed based on your findings.
2. Cost of Capital Review. ( 25 MARKS )
– Calculate the Weighted Average Cost of Capital ( WACC ) using current market inputs.
– Evaluate how the financing method (e.g., debt vs equity) will affect WACC and Solara’s financial risk.
3. Dividend Policy Analysis. ( 25 MARKS )
– Using dividend theories such as the Residual Theory, Bird-in-the-Hand Theory, and Signaling Theory, critique the proposed shift in dividend policy.
– Should Solara adopt a lower payout or continue with its historical policy? Justify your recommendation.
4. Ethical Financial Leadership. ( 25 MARKS )
– Discuss how ethical considerations influence capital investment decisions and shareholder communication.
– Reflect on how transparency and sustainability reporting can enhance corporate financial reputation.
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Instructions :
Submit a concise, structured executive report with supporting calculations, financial theory references, and strategic insights.
Use tables or graphs where appropriate to enhance clarity. END OF QUESTION.
