Financial Management Assignment: Strategic Evaluation of Capital Budgeting, Cost of Capital, Dividend Policy, and Ethical Financial Leadership for Solara Industries Malaysia

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.

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.

Answer

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