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Sagot :
The start-up chemical company must earn $8.5 million in the first year.
What is Rate of Return (ROR)?
The rate of return (ROR) is the net gain of an investment for a period. The dollar ROR is computed by deducting interest on acquired funds (debts) from the earnings before interest. It can be expressed as a percentage of the initial investment.
Data and Calculations:
Average cost of capital = 15%
Expected rate of return = 20%
Reduction in the rate of return = 3%
New expected rate of return (ROR) = 17% (20% - 3%)
Venture capital funds = $50 million
Interest expense on venture capital = $7.5 million ($50 million x 15%)
Earnings in the first year = $8.5 million ($50 million x 17%)
Thus, the start-up chemical company must earn $8.5 million in the first year.
Learn more about rate of return at https://brainly.com/question/25895372
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