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Hart Venture Capital ( HVC ) specializes in providing venture capital for software development and Internet applications. Currently HVC has two investment opportunities: ( 1
Hart Venture Capital HVC specializes in providing venture capital for software development and Internet applications. Currently HVC has two investment opportunities: Security Systems, a firm that needs additional capital to develop an Internet security software package, and Market Analysis, a market research company that needs additional capital to develop a software package for conducting customer satisfaction surveys. In exchange for Security Systems stock, the firm has asked HVC to provide $ in year $ in year and $ in year over the coming threeyear period. In exchange for their stock, Market Analysis has asked HVC to provide $ in year $ in year and $ in year over the same threeyear period. HVC believes that both investment opportunities are worth pursuing. However, because of other investments, they are willing to commit at most $ for both projects in the first year, at most $ in the second year, and $ in the third year. HVCs financial analysis team reviewed both projects and recommended that the companys objective should be to maximize the net present value of the total investment in Security Systems and Market Analysis. The net present value takes into account the estimated value of the stock at the end of the threeyear period as well as the capital outflows that are necessary during each of the three years. Using an rate of return, HVCs financial analysis team estimates that funding of the Security Systems project has a net present value of $ and funding of the Market Analysis project has a net present value of $ HVC has the option to fund any percentage of the Security Systems and Market Analysis projects. For example, if HVC decides to fund of the Security Systems project, investments of $ $ would be required in year $ $ would be required in year and $ $ would be required in year In this case, the net present value of the Security Systems project would be $ $ The investment amounts and the net present value for partial funding of the Market Analysis project would be computed in the same manner. Managerial Report Perform an analysis of HVCs investment problem and prepare a report that presents your findings and recommendations. Include but do not limit your discussion to a consideration of the following items: What is the recommended percentage of each project that HVC should fund and the net present value of the total investment? What capital allocation plan for Security Systems and Market Analysis for the coming threeyear period and the total HVC investment each year would you recommend? What effect, if any, would HVCs willingness to commit an additional $ during the first year have on the recommended percentage of each project that HVC should fund? What would the capital allocation plan look like if an additional $ is made available? What is your recommendation as to whether HVC should commit the additional $ in the first year? Provide model details and relevant computer output in a report appendix.
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