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?

Answer rating: 100% (QA)

a With 100 equity financing Net Income 18 million 3 million operating income 40 taxes Total Dollar ... View the full answer