QUESTION 1

Galadriel Energy Berhad is a public listed company in Malaysia that focuses on the development and growth of renewable energy within the Asia-Pacific region. Although the corporation is the market leader in hydroelectric energy, the growth of the corporation to geothermal energy has been limited.

In line with their companys vision towards becoming a renowned market leader in renewable energy in the Asia-Pacific region within the next decade, the senior management is seeking to pursue projects that focus on the development of geothermal energy. The estimated cost for these projects amounts to RM210 million.

As the appointed external consultant to assist the organization towards attaining the entire funding, you have advised the senior management team to attain RM70 million by issuing a 10-year bond. Upon extensive discussions with the investment bankers and yourself, Galadriel Energy Berhad have agreed to offer 6.25% interest to the bondholders, with interest paid annually.

The additional RM140 million will be acquired through other forms of funding that is available to the corporation.Examine the rationale behind Galadriel Energy Berhads decision to offer 6.25% interest to their bondholders.