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.
(2) 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 asked HVC to provide $600,000 in year 1, $600,000 in year 2, and $250,000 in year 3 over the coming three-year period. In exchange for their stock, Market Analysis asked HVC to provide $500,000 in year 1, $350,000 in year 2, and $400,000 in year 3 over the same three-year period. HVC believes that both investment opportunities are worth pursuing. However, because of other investments, they are willing to commit at most $800,000 for both projects in the first year, at most $700,000 in the second year, and $500,000 in the third year.
Perform an analysis of HVCâ€™s investment problem and prepare a report that presents your findings and recommendations. Be sure to include information on the following:
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 HVC investment each year
3. The effect, if any, on the recommended percentage of each project that HVC should fund if HVC is willing to commit an additional $100,000 during the first year
4. A capital allocation plan if an additional $100,000 is made available
5. Your recommendation as to whether HVC should commit the additional $100,000 in the first year.
Provide model details and relevant computer output in a report appendix.