A venture capital fund is considering investing in a startup that is seeking toraise $1,500,000 in equity capital. The venture had previously raised$250,000 from angel investors and the founder had invested $50,000 of hersavings in her venture. At the time this investment was under consideration,the company was projecting to be profitable three years from now. Net incomein year three is projected to be $225,000. Because of projected losses in yearone and two, cumulative retained earnings entering year three are projected tobe negative $120,000. The venture capital firm will not invest unless theprojected return on equity in year three is at least 30%If you were employed by the venture capital fund, based on this informationalone, would you recommend that the $1,500,000 investment be made?Yes, the projected return on equity in year three is greater than 30%No, the projected return on equity in year three is less than 30%

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 22P

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