A local entrepreneur is looking for investors any new company that will develop mobile apps for behavioral
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A local entrepreneur is looking for investors any new company that will develop mobile apps for behavioral health. The company requires a $15 million in start up funds. it can be capitalized with 100% of equity financing or with 30% debt and 70% equity. Expected operating income is $3 million and the company will pay taxes at a rate of 40%. Debt financing would bear and interest rate of 7%.
a. What would be the firm’s net income, total dollar return to investors, and ROE with 100% equity financing
b. What would be the firm’s net income, total dollar return to investors, and ROE with 30% debt financing and 70% Equity financing.
c. What factors should be investors consider when deciding on the appropriate capital structure?
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