The concept of after$-$tax weighted average cost of capital $($WACC$)$ is a foundation when assessing the cost of capital and investment options. The assignment will present the opportunity to assess a financing transaction, build upon your understanding of this cost of capital concept, and demonstrate your ability to calculate the after$-$tax WACC.

Read the scenario and address the checklist items below.

Scenario: You are an angel investor whom an entrepreneur has approached to assess an investment opportunity.

An entrepreneur asks for $$100,000$ to purchase a diagnostic machine for a healthcare facility. The entrepreneur hopes to maintain as much equity in the company as possible. Yet, the angel investor began negotiations, saying he wanted the transaction to be financed with $50\%$ debt and $50\%$ equity.

As the angel investor, you assign a cost of equity of $14\%$ and a cost of debt at $10\%.$ Based on Year $1$ sales projections, the entrepreneur assures you a return on investment $($ROI$)$ of $9\%$; conceptually, this will cover the first year$$s pretax cost of debt and allow for planned equity growth and refinancing model for Year $2.$ You will use an after$-$tax weighted average cost of capital $($AT$-$ WACC$)$ model, including the after$-$tax cost of debt and proportionate costs of debt versus equity. A $32\%$ marginal tax rate is applied.