You and three college buddies have formed a company, Right For You, Inc., that will customize off- the-shelf marketing software locally rather than contracting with the original development company or a large, nationally based customizer. The target clients are bricks-and-mortar merchants and smaller e-commerce businesses. Because of your unique approach to this type of software tailoring, a venture capitalist group (individuals or companies that invest in innovative start-ups at low rates and a percentage of the business for the future) has agreed to invest in your start-up with $1 million to be recovered from business proceeds at a low interest rate of 3% per year over a 4-year period, and a 15% share in Right For You. During the negotiations with the venture capitalist, you did not ask about the basis of the 3% interest. To help your partners understand the finances, determine the following: a. The minimum revenue needed to recover the $1 million investment and earn the 3% per year during the life of the loan. b. The difference in the equal annual payments if loan interest is charged on the principal rather than on the unpaid balance.

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Venture capital firms raise capital from Limited Partners such as pension funds endowments and famil... View the full answer