Description
You have a great idea about a new business opportunity. You’ve run the numbers and are confident that with an initial investment of $500,000, you can turn a profit in three years and generate $150,000 in operating income per year. But you realize there are no guarantees. Further, you anticipate that there is at least a 50/50 chance the economy will enter a recession within the next two years.
- What factors will be most important in determining if you want to fund your venture through equity or take a loan for the $500,000?
- If you meet all your projections, will you be happier in five years that you used equity to fund the venture or debt? Why?
- If the company goes bankrupt in five years, would you have a different answer? Why?
Explanation & Answer
Attached. Please let me know if you have any questions or need revisions.
Investing in a Startup Business – Outline
I. Question 1
A. Following the acquisition of a great opportunity for a business startup that
requires an initial investment of $500,000, it is important to consider the primary
factors that would determine whether the business will be funded using either debt
or equity financing.
II. Question 2
A. If I meet all my projections, in five years I would be happier that I used debt
financing because I would not have surrendered the control of my business to
either angel investors, equity crowd funding, or venture capitalists.
III. Question 3
A. If the business goes bankrupt in five years, I would not have a different answer.
The reason is that I would have not invested the whole amount which means that I
still have an option of venturing into another business.
Running head: INVESTING IN A STARTUP BUSINESS
Investing i...