Case Problem 3- Hart Venture Capital

Problem Statement

Hart Venture Capital (HVC) specializes in providing venture capital for software development and Internet applications. Currently HVC has two investment opportunities: (1) Security Systems, a firm that needs additional capital to develop an Internet security software package, and (2) Market Analysis, a market research company that needs additional capital to develop a software package for conducting customer satisfaction surveys. In exchange for the Security Systems stock, the firm has asked HVC to provide $600,000 in year 1, $600,000 in year 2, and $350,000 in year 3. In exchange of their stock, Market Analysis has asked HVC to provide $500,000 in year 1, $350,000 in year 2,*…show more content…*

For example if HVC decides to fund 40% of the Market Analysis project:

.40 x ($500,000) = $200,000 would be required for year 1

.40 x ($350,000) = $140,000 would be required for year 2

.40 x ($400,000) = $160,000 would be required for year 3

Net Present Value of Market Analysis project would be .40 x ($1,600,000) = $640,000.

Our Analysis for HVC investment problem would include us to solve these questions: 1.) What are the recommended percentages of each project that HVC should fund and the net present value of the total investment? 2.) What capital allocation plan for Security Systems and Market Analysis for the coming three year period and the total HVC investment each year would you recommend? 3.) What effect, if any, would HVC’s willingness to commit an additional $100,000 during the first year have on the recommended percentage of each project that HVC should fund? 4.) What would the capital allocation plan look like if an additional $100,000 is made available? 5.) What is your recommendation as to whether HVC should commit the additional $100,000 in the first year?

Constraints

So for the decision variables and constraints, we look at this model: | Security Systems | Plus | Market Analysis | | Year 1 | 600,000(x) | + | 500,000(x) | ≤ 800,000 | Year 2 | 600,000(x) | + | 350,000(x) | ≤ 700,000 | Year 3 | 250,000(x) | + | 400,000(x) | ≤ 500,000 |

Both project teams asking price are as shown, for instance in year 1,

Problem Statement

Hart Venture Capital (HVC) specializes in providing venture capital for software development and Internet applications. Currently HVC has two investment opportunities: (1) Security Systems, a firm that needs additional capital to develop an Internet security software package, and (2) Market Analysis, a market research company that needs additional capital to develop a software package for conducting customer satisfaction surveys. In exchange for the Security Systems stock, the firm has asked HVC to provide $600,000 in year 1, $600,000 in year 2, and $350,000 in year 3. In exchange of their stock, Market Analysis has asked HVC to provide $500,000 in year 1, $350,000 in year 2,

For example if HVC decides to fund 40% of the Market Analysis project:

.40 x ($500,000) = $200,000 would be required for year 1

.40 x ($350,000) = $140,000 would be required for year 2

.40 x ($400,000) = $160,000 would be required for year 3

Net Present Value of Market Analysis project would be .40 x ($1,600,000) = $640,000.

Our Analysis for HVC investment problem would include us to solve these questions: 1.) What are the recommended percentages of each project that HVC should fund and the net present value of the total investment? 2.) What capital allocation plan for Security Systems and Market Analysis for the coming three year period and the total HVC investment each year would you recommend? 3.) What effect, if any, would HVC’s willingness to commit an additional $100,000 during the first year have on the recommended percentage of each project that HVC should fund? 4.) What would the capital allocation plan look like if an additional $100,000 is made available? 5.) What is your recommendation as to whether HVC should commit the additional $100,000 in the first year?

Constraints

So for the decision variables and constraints, we look at this model: | Security Systems | Plus | Market Analysis | | Year 1 | 600,000(x) | + | 500,000(x) | ≤ 800,000 | Year 2 | 600,000(x) | + | 350,000(x) | ≤ 700,000 | Year 3 | 250,000(x) | + | 400,000(x) | ≤ 500,000 |

Both project teams asking price are as shown, for instance in year 1,

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