Question:

You are appointed as a finance manager at Haroon Industries Ltd, Pakistan, (HILP-KA), which is an emerging and growing firm formed on 01-01-2017. It is your responsibility to assess the corporate issues regarding capital expenditure/ capital budgeting, evaluate the various investment projects proposed by plant managers, Research and Development department, and various authorities. For this purpose, you are also responsible for the assessment and acquisition required capital for these investment projects from available sources of financing. In your university days, you studied various finance subjects, so you have sufficient knowledge in this area. You studied various theories of capital structure including Pecking Order Theory, tradeoff theory of capital structure, signaling theory, etc. To get required capital for value enhancing investment projects and any justifiable purpose firms collect the capital. You also intend to attain and maintain the "Corporate Financial Flexibility". In a meeting with CEO, Chairman of Board and other board members, the following issues are discussed with you and the previously mentioned members were keen to know that. Required 1. How you can apply Pecking order theory in this growing firm i.e. (Explain the Pecking Order theory for this (HILP-KA) firm). 2. You consider NPV and IRR the most appropriate methods for capital budgeting analysis. How you will made decisions for acceptance or rejection of a mutually exclusive project by using these techniques by keeping in view the Weighted Average Cost of Capital (WACC)? 3. A board member asks you regarding the term "Corporate Financial Flexibility". He wants to know that what is the definition of corporate financial flexibility and how it can help a finance manager to make various financial decision including investment decision and ability, dividend payment ability and overall cost of capital (WACC). 4. Another board member wants to know that what is Capital Asset Pricing Model (CAPM)? Why it is used? Identify and explain its factors/ elements