Financial Advisory Report: Capital Budgeting, WACC & Dividend Policy for Solara Industries, Singapore

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

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