Financial Strategy for a Renewable Energy, Assessment Example

I. What is your financing strategy for the project? Consider construction-period financing and long-term financing alternatives.

As it could be observed from the research and referential pattern that intends to evaluate whether the project is feasible or not, it is rather imposed through data that the project is not that rational enough to be undertaken at present time. This is the reason why future investment as seen as something more convincingly practical than the handing the project at current time. To be able to fund the future progress of the project, the utilization of internal rate of return is being suggested to be used to measure possible future cash flow for the project. This hopes to create a more defined pattern of investment compared to the use of net present value since the project is proposed to be undertaken in the future.

This form of funding and investment is expected to create a definite measure of capital budgeting therefore allowing the organization to keep track of its assets and set aside a certain amount of financial support for the future project without actually hurting the assets to be used for the operations embraced by the organization at present. Relatively, this improves the manner by which the organization foresees its position in both the short and long-term aspects of operation.

II. Do you recommend asset-backed financing or traditional portfolio financing?

Traditional portfolio financing is more recommended in this form of project undertaking. This will lessen the risks on the part of the organization as they intend to utilize the available excess capital of the organization rather than specifically manipulate their current asset to finance the project to be set for future definition. This approach would be able to provide the organization a better sense of managing all its current investments and pick a part of the profit earned from each therefore dedicating a prepared budget for the project imposed in the future.

III. Which specific financial structure will you propose to the company treasurer?

It is suggested that because the project being developed herein is more risky than safe, the company treasurer should be able to handle the management of the investment through applying the principles of risk parity as a form of financial structure. This will allow the treasurer to make sure that the budget allocated for the project is protected from risks through enrolling the budget for the project into a variety of investment systems. By the time the profit of the investments have already been completely accumulated then the project would be ready for undertaking. The lesser the risks, the more likely that the project would be able to yield the results it is expected to incur for the company’s growth and the impact that it has on the manner by which the organization supports the changing pattern of energy production in the market.

IV. How will your proposed financing plan fit within the existing structure of your diversified energy company?

Given that the company currently handles a whole different form of energy production, it would be best if the underlying project be considered as a preparation for the future condition of the market that the organization wants to serve. While it is expected that the future of the energy industry is to change, it has not yet completely undertaken such adjustment at present therefore imposing that the market would not be ready for the alternative energy production yet today. Notably though, being prepared, the allocation of financial assets to support the advancement of technology and research on producing alternative energy resources would best be able to provide the company an edge in the future.

V. What risk reduction techniques do you plan to employ?

Investing on multiple policies is important in this form of project undertaking. Given that there is not much of an assurance on the returns and revenue from the project due to the current condition of the market, it is much easier to define the project’s development through preparing for its maturity until the time that the organization is ready to handle it more definitely.

VI. As a part of the financing strategy for the project, what types of assets might be considered appropriate to lease? Would hedging be employed in the strategy? Why or why not? What tax and other entity structure factors might make leasing appropriate?

Investment hedging is assumed to have the most effective approach in defining and managing the budget needed for the pursuance of the project. Relatively, this will allow the organization to seek proper ways by which they could handle the condition of market change while assuring the direction of the money intended for the project and also protecting the project from all the risks it is likely to encounter once it has already been launched for the company to undertake.

Given this choice, it is likely that the company would be able to allocate their current budget to other projects that they can actually handle today. Notably, such consideration on the condition of the market and the position of the company in the industry would provide a wider and better choice of development that could supersede the manner by which the company operates today and sets its path towards future development involving the production of alternative energy resources that it could offer to the market for consumption.

References:

Clarke, R.; de Silva, H.; Thorley, S. (2002). “Portfolio constraints and the fundamental law of active management” (pdf). Financial Analysts Journal 58 (5): 48–66. doi:10.2469/faj.v58.n5.2468.

PSERS Revamp Cash Management. Money Management Letter. Oct 18, 2010. p. 4

Burr, Barry B. (Jan 18, 2011). Wisconsin Picks Pair For $600 Million In Risk Parity. Pensions and Investments.

Denmark, Francis (September 2010). The Last Frontier. The Institutional Investor