Reference no: EM132360571

Scenario: As an Angel Investor you have been asked to assess an entrepreneur's 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 Address the following items:

Need help addressing the following items:

• Explain the tax benefits of debt financing.

• Calculate the AT- WACC with a 60% debt and 40% equity financing structure.

Correctly explains the required steps for After Tax Weighted Average Cost of Capital (AT-WACC) calculation with applicable dollar and or percentage values.

• Apply the calculated AT-WACC to explain why this is or is not a viable investment for you as the Angel Investor.

• Explain what the entrepreneur's financial restructuring AT- WACC (% Debt and % Equity) need to be in order to positive ROI. Correctly assesses the significance of the difference between cost of debt versus Return on Investment (ROI). Correctly integrates the differences between AT-WACC and ROI to make a financial investment decision

• Explain why you as the Angel Investor would require more or less debt versus equity financing. Be sure to note the nature of the claims on assets in times of a bankruptcy.

• Differentiates the nature of secured debt financing versus that of equity.