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: 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