Read the passage and answer the following questions:

XYZ Textiles Ltd., a mid-sized manufacturer of apparel, is facing several financial management challenges. The company needs to optimize its working capital management due to increasing inventory levels and longer accounts receivable cycles. The current ratio is 1.4, but the quick ratio is low at 0.7, indicating potential liquidity issues.

XYZ Textiles is considering expanding its operations by purchasing new machinery, costing $10 million. The project is expected to generate cash flows of$2 million annually for 7 years. The management is evaluating the project using capital budgeting techniques such as NPV and IRR. The company's cost of capital (WACC) is 9%, and the calculated NPV is positive, while the IRR is 12%, suggesting the project is viable.

The company's capital structure consists of 60% equity and 40% debt. With interest rates rising, the management is weighing whether to increase debt financing to fund the expansion or issue additional equity, which could dilute shareholder control. They are also concerned about maintaining an optimal mix to minimize the weighted average cost of capital (WACC).

Finally, the company's dividend policy has been a consistent payout of 30% of net income. With expansion plans underway, the management debates whether to cut dividends to retain more earnings for reinvestment or maintain the payout to appease shareholders.