You have an idea for a new business - making fashion masks with a unique and safe
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Question:
Because the pandemic will likely end within a year, the business will only last one year, Starting the business will require an upfront investment of $12,000
Your cash flow in year 1 is expected to be $40,000 after which the business will close.?
The risk free rate is 3%. The business risk justifies a 7% premium, for a total discount rate of 10%?
Assume that you choose to finance the firm with all equity, you can expect investors to pay closest to $36,364 for 100% of the stock in the firm? Assume that your business will generate at least $12,000 in year 1 cash flow, so you decide to borrow $12,000 at the risk free rate at time 0?
You can now expect investors to pay closest to $24,364 for equity in the firm?
In addition, after borrowing $12,000, your business's WACC will be [X]% and your equity cost of capital will be [Y]%?
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