Question
As an Angel Investor you have been asked to assess an entrepreneurs product and financing options. In your role as an Angel Investor you focus
As an Angel Investor you have been asked to assess an entrepreneurs product and financing options. In your role as an Angel Investor you focus on one year at a time. The entrepreneur asks for $100,000 immediately to purchase a diagnostic machine for a healthcare facility. The entrepreneur hopes to be financed with 60 percent debt and 40 percent equity. As the entrepreneurs venture capital partner, you assign a cost of equity of 15% and a cost of debt at 10%. You require a Return on Investment (ROI) of 8%. You are using an After Tax Weighted Average Cost of Capital (AT- WACC) model. A 35% marginal tax rate is applied.
Calculate the AT-WACC with a 60% debt and 40% equity financing structure and then explain why this is or is not a viable investment for you as the Angel Investor.
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