First Solar, Inc. provides photovoltaic (PV) solar energy solutions in the United State, Japan, France, Canada, India, Australia, and internationally. The company designs, manufactures, and sells cadmium telluride solar modules that converts sunlight into electricity. It serves developers and operators of systems, utilities, independent power producers, commercial and industrial companies, and other system owners.

Founded in 1999, First Solar is a leading American solar technology company and global provider of responsibly produced eco-efficient solar modules advancing the fight against climate change. The company is unique among the worlds ten largest solar manufacturers for being the only US-headquartered company and not manufacturing in China. First Solars advanced thin film photovoltaic (PV) modules represent the next generation of solar technologies, providing a competitive, high-performance, lower-carbon alternative to conventional crystalline silicon (c-Si) PV panels.

A brief history of solar power

In 1954, Bell Labs developed the first silicon photovoltaic cell. Although solar energy had previously been captured and converted into usable energy through various methods, only after 1954 did solar power begin to become a viable source of electricity to power devices over extended periods of time. The first solar cells converted solar radiation to electricity at an efficiency of 4 percent for reference, many widely available solar panels today can convert sunlight to solar power at above 20 percent efficiency, a number constantly on the rise. Although solar energy adoption was slow at first, several state and federal incentives and policies contributed to driving down the cost of solar far enough to become more widely adopted.

Financial Climate of the Company

Like many of its competitors, the company has been struggling financially. The latest financial information indicates the company has a limited financial flexibility to expand its operation. Below is related information about the companys performance since January 2023:

Financial Performance

Profitability

Profit Margin 3.75%

Operating Margin (ttm) -0.13%

Management Effectiveness

Return on Assets (ttm) -0.03%

Return on Equity (ttm) 1.62%

]On January 19, 2023, the stock price of the company dropped from $177.57 to $165.01.

The companys operations require an investment which would generate new cash flows. To construct a new facility to produce better solar panels the company need to spend $70 million in its Arizona center. Currently, the company had limited cash available to maintain its working capital and being able to finance the project with internal cash flows. To finance the new facility, First Solar has decided to use $20 million of its profits to finance a portion of the expansion and plans to sell a bond issue to raise the remaining $50 million. The decision to use so much debt financing for the project was largely due to the fact the stock price of the company had decreased substantially and has used relatively small debt in its operation. In fact, the company has only $313.20 million debt relative to its market cap of $17.59 billion.

Debt Financing

The company currently has one issue of bonds outstanding. The bonds have a par value of $1,000 per bond, carry an 8 percent coupon rate of interest, have 14 years to maturity, and are selling for $1,050. First Solars common stock has a current market price of 165.01with beta of 1.33. The current risk-free rate based on 10-years Treasury Bonds is 3.34% and market risk premium of 6%. d. Compute the weighted average cost of capital for First Solars investment using the weights reflected in the actual financing mix.