As an Angel Investor you have been asked to assess an entrepreneur’s product and financing options.
Assessment: The Angel Investor
This Competency Assessment assesses the following outcome:
MT480M6: Incorporate the combined attributes of debt and equity given a cost of capital model.
The concept of after-tax Weighted Average Cost of Capital (WACC) is a common issue when studying finance at all levels. The impact of taxes, applicable to most forms of financing is a key component of studies in the field of finance. The Assessment questions will present the opportunity to assess and build upon your knowledge of and ability to calculate the after-tax WACC and the cost of debt and equity.
Read the fictional scenario and respond to the checklist items in this written Assessment.
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 checklist items:
Minimum Submission Requirements
If work submitted for this competency assessment does not meet the minimum submission requirements, it will be returned without being scored.