Case Description: Hart Venture Capital provides venture capital for software development and Internet applications. Currently HVC has two investment opportunities .1)Security Systems which a firm develop an Internet Security Software package,2) Market Analysis ,that needs capital to develop software for conducting customer satisfaction surveys .So for Security System a firm asked HVC to provide 6,00000$ in year 1 , 600000 in year 2 &250000 in year 3 or the three consecutive year. Similarly for Market Analysis HVC has to provide 500000, 350000 & 400000 in the same three consecutive year. However due to other investment HVC can commit at most $800000 for both projects in first year ,at most $700000 in second year and at most $500000 in third year.
HVC financial team reviewed both the project and recommended to maximize the net present value of the total investment in both the sector. Using 8% rate of return the financial team estimates that the 100% funding of the security systems project has a net present value of $ 1800000 and for Market Analysis it is $1600000.
Now HVC has option to fund any percentage of funds to both projects. For example if HVC decides to fund 40% of the Security Systems project ,investments of 0.4($60,000)=$240,000 would be required in year 2 and 0.4 ($250,000) =$100,000 would be required in year 3 .In this case the net present value of the security systems project would be 0.4(1,800,000) =$720,000 .The investment amounts and the net present value for partial funding of the Market Analysis project would be computed in the same manner.
So we need to perform analysis of above problem and presents a report that presents finding and recommendations.
1.The recommended percentage of each project that HVC should fund and the net present value of the total investment .
2.A capital allocation plan for Security Systems and Market Analysis for the coming three year period and the total investment each year.
3.The effect if an on the recommended percentage of each project if HVC is willing to commit an additional $100000 during the first year .
4.A capital allocation plan if an additional $100000 is made available .
5. Your recommendation as to whether HVC should commit the additional $100000 in the first year.
Provide more detail and relevant computer output.
Refer attached... View the full answer