Question 1 A few years ago, Innovy Pty Ltd commenced business in the renewal energy industry. The company is unlevered. Currently, the company possesses very few capital assets. By the nature of its business, the company has been investing, and will continue to so, in research and development projects every year. Hence, the company is operating at a loss. It is only expected to turn profitable in four years. After that, profits are expected to increase at a rate of 30 percent for a period of six years. Thereafter, growth will moderate at 4 percent per annum into the foreseeable future. The directors are optimistic about the forecasts. Required: a. Advise the directors of Innovy Pty Ltd the capital structure policy the company should adopt for the next four, ten and fifteen years. Your answer must apply and explain the relevant capital structure theories. Word count limit: 250 words. To provide the word count at the beginning of your answer. (15 marks) b. Explain clearly Modigliani and Miller's Proposition I in a perfect world. What adjustments must be made to this proposition if corporate taxes and bankruptcy risk exist? Your answer must include the explanation of the appropriate cost curves and value graphs. Word count limit: 300 words. To provide the word count at the beginning of your answer (25 marks) c. According to Graham (2011), the two most popular debt policy factors listed were financial flexibility and credit rating. Critically discuss this finding. (10 marks) Question 1 A few years ago, Innovy Pty Ltd commenced business in the renewal energy industry. The company is unlevered. Currently, the company possesses very few capital assets. By the nature of its business, the company has been investing, and will continue to so, in research and development projects every year. Hence, the company is operating at a loss. It is only expected to turn profitable in four years. After that, profits are expected to increase at a rate of 30 percent for a period of six years. Thereafter, growth will moderate at 4 percent per annum into the foreseeable future. The directors are optimistic about the forecasts. Required: a. Advise the directors of Innovy Pty Ltd the capital structure policy the company should adopt for the next four, ten and fifteen years. Your answer must apply and explain the relevant capital structure theories. Word count limit: 250 words. To provide the word count at the beginning of your answer. (15 marks) b. Explain clearly Modigliani and Miller's Proposition I in a perfect world. What adjustments must be made to this proposition if corporate taxes and bankruptcy risk exist? Your answer must include the explanation of the appropriate cost curves and value graphs. Word count limit: 300 words. To provide the word count at the beginning of your answer (25 marks) c. According to Graham (2011), the two most popular debt policy factors listed were financial flexibility and credit rating. Critically discuss this finding. (10 marks)