A healthcare venture capital firm is looking for new investors in a company that will

develop mobile applications in the behavioral health space. The company will require

approximately $$15$ million in start$-$up capital and may be financed with $100\%$ venture

capital $($equity$)$ or with a mix of $30\%$ long term debt, bearing a current interest rate of

$7\%,$ and $70\%$ venture $($equity$)$ capital. Expected EBIT is $$3$ million per year, and the

company pays combined federal and state taxes at $40\%.$

A$.$ What would be the company's net income, total dollar return to equity

investors, and $\%$ return on equity with the $100\%$ equity $($no debt$)$ option?

B$.$ What would be the company's net income, total dollar return to equity

investors, and $\%$ return on equity with the $30\%$ debt$/70\%$ equity option?

C$.$ What factors should potential equity investors consider when deciding on an

appropriate capital structure?