MT480 The Angel Investor Paper
Assignment: The Angel Investor
The concept of after-tax Weighted Average Cost of Capital (WACC) is a foundation when assessing cost of capital and investment options. The Assignment will present the opportunity to assess a financing transaction and build upon your understanding of this cost of capital concept and demonstrate your ability to calculate the after-tax WACC.
The following course outcome is assessed in this Assignment:
MT480-6: Incorporate the combined attributes of debt and equity given a cost of capital model.
Read the scenario and address the checklist items.
Scenario: You are an Angel Investor who has been approached by an entrepreneur 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, yet the Angel Investor requires the transaction to be financed with 60% debt and 40% equity.
As the Angel Investor, you assign a cost of equity of 16% and a cost of debt at 9%. Based on Year 1 sales projections the entrepreneur assures you, the Angel Investor, 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 a refinancing model for Year 2. You will use an After Tax Weighted Average Cost of Capital (AT- WACC) model which includes the after tax cost of debt and proportionate costs of Debt vs. Equity. A 35% marginal tax rate is applied.
Address the following checklist items:
· Explain the tax benefits of debt financing.
· Calculate the AT- WACC with a 60% debt and 40% equity financing structure.
· Apply the calculated AT-WACC to explain why this is or is not a viable investment for you as the Angel Investor.
· Explain a financial restructuring AT- WACC (given changes to proportions of % Debt vs. % Equity financing) that would create a positive ROI.
· Explain why you as the Angel Investor would require more or less debt vs. equity financing. Be sure to note the role of the Unified Commercial Code-1 (UCC-1) document in this transaction and the of claim on assets in times of a bankruptcy.
· Submit your response in a minimum of a 2-page APA formatted Microsoft® Word® document to the Dropbox with additional title and references pages.
View the rubric for additional instructions: Unit 8 Assignment Rubric
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more