1. Capital
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
A potential 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:
Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Include sensitivity analysis for:
Fluctuations in discount rate
Operating cash flows
Recommend whether the project should proceed based on your findings
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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
Solara’s financial risk
3. Dividend Policy Analysis (25 MARKS)
Using dividend theories, critique the proposed shift in dividend policy:
Residual Theory
Bird-in-the-Hand Theory
Signaling Theory
Recommend whether Solara should:
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
Shareholder communication
Reflect on how transparency and sustainability reporting can enhance corporate financial reputation
Instructions
Submit a concise, structured executive report with:
Supporting calculations
Financial theory references
Strategic insights
Tables or graphs are used where appropriate to enhance clarity