Question 3A venture capital fund is considering investingin a startup that is seeking to raise $1,500,000in equity capital. The venture had previouslyraised $250,000 from angel investors and thefounder had invested $50,000 of her savings inher venture. At the time this investment wasunder consideration, the company wasprojecting to be profitable three years fromnow. Net income in year three is projected tobe $225,000. Because of projected losses inyear one and two, cumulative retainedearnings entering year three are projected tobe negative $120,000. The venture capital firmwill nbt invest unless the projected return onequity in year three is at least 30%If you were employed by the venture capitalfund, based on this information alone, wouldyou recommend that the $1,500,000investment be made?Yes, the projected return on equity in yearthree is greater than 30%No, the projected return on equity in yearthree is less than 30%

Venture Capital fund considering investment proposal for investing $ 1500000 Venture capital fund…

Answered: If you were employed by the venture…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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If you were employed by the venture capital fund, based on this information alone, would you recommend that the $1,500,000 investment be made? Yes, the projected return on equity in year three is greater than 30% No, the projected return on equity in year three is less than 30%