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%

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Question 3
A venture capital fund is considering investing
in a startup that is seeking to raise $1,500,000
in equity capital. The venture had previously
raised $250,000 from angel investors and the
founder had invested $50,000 of her savings in
her venture. At the time this investment was
under consideration, the company was
projecting to be profitable three years from
now. Net income in year three is projected to
be $225,000. Because of projected losses in
year one and two, cumulative retained
earnings entering year three are projected to
be negative $120,000. The venture capital firm
will nbt invest unless the projected return on
equity in year three is at least 30%
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%
Transcribed Image Text:Question 3 A venture capital fund is considering investing in a startup that is seeking to raise $1,500,000 in equity capital. The venture had previously raised $250,000 from angel investors and the founder had invested $50,000 of her savings in her venture. At the time this investment was under consideration, the company was projecting to be profitable three years from now. Net income in year three is projected to be $225,000. Because of projected losses in year one and two, cumulative retained earnings entering year three are projected to be negative $120,000. The venture capital firm will nbt invest unless the projected return on equity in year three is at least 30% 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%
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