Larry and Janice intend to invest $200,000 in the business. Their financial projections show that during the first year of operations their business could generate $25,000 in profits. Subsequent years could grow well beyond this level. The couple could borrow on a long term basis $100,000 from the bank (@6%) and they could use $100,000 of their savings (which were currently generating 8% returns). Q1: With the above info what is CompuTech’s projected return on investment in year 1? What is their cost of capital? (Assume 0 tax rate for this work) Q2: Should the couple launch their business based on your answer to Q1? Why or why not? Q3: If small business is taxed at 33% what is the business’ Weighted Cost of Capital?
Larry and Janice intend to invest $200,000 in the business. Their financial projections show that during the first year of operations their business could generate $25,000 in profits. Subsequent years could grow well beyond this level. The couple could borrow on a long term basis $100,000 from the bank (@6%) and they could use $100,000 of their savings (which were currently generating 8% returns).
Q1: With the above info what is CompuTech’s projected
Q2: Should the couple launch their business based on your answer to Q1? Why or why not?
Q3: If small business is taxed at 33% what is the business’ Weighted Cost of Capital?
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