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Analyze the cost benefit function of venture capital financing vs capital market financing. make an opportunity cost benefit analysis in discounting vs outright payment.

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Collen Von
Collen VonLv2
28 Sep 2019

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Supposing that Apple Inc is presently offering terms of 2/15, net 75 and they have an average credit sale of $250000 and an opportunity cost of capital of 13%. What is the net benefit (or cost) to Apple if one of their customers actually takes the discount terms? a. Benefit of $102.36 b. Benefit of $202.39 c. Cost of 102.36 d. Cost of $202.39

You are contemplating a business venture, which involves an initial investment of $150,000 followed by an additional investment of $30,000 at the end of first year and $20,000 at the end of 2nd year. You want to analyze the venture over a project life of 10 years (measured from today). Cost of Capital (MARR) = 12%. The venture will result in benefit of $170,000 in the 3rd year and increasing at 4% per year. The operating expenses are estimated to be $50,000 in the 3rd year and decreasing at 2% per year. At the end of the project life, you will sell the business for $20,000. Do the analysis using before tax cash flows. In before tax analysis, taxes are ignored and depreciation is not relevant.

Compute

a) Net Present Value (NPV)

b) Profitability Index (PI)

c) Internal Rate of Return (IRR)

d) Discounted Payback

Is the project acceptable?

The firm decides to raise $30 million by selling equity and debt. The investment bankers hired by your firm contact potential investors and come back with the following numbers:

Debt that pays $1 million coupons a year and $18 million maturity value after 10 years will sell for $20 million.

Equity that pays expected dividends of $1.2 million starting next year and growing at a rate of 3 percent per year thereafter sells for $10 million.

Question 12: Calculate the cost of debt, equity, and the WACC.

Before starting your calculations, review the following materials:

cost of capital and choice of financing

equity, debt, and preferred stock

Submit your Cost of Debt Report and Calculations to the dropbox below. Be sure to show your calculations in Excel and provide a narrative analysis in PowerPoint. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.

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