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The concept of after - tax weighted average cost of capital ( WACC ) is a foundation when assessing the cost of capital and investment

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 years 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.

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