Hart Venture Capital
Hart Venture Capital (HVC) specializes in providing venture capital for software development and internet applications. Currently HVC has two investment opportunities: 1. Security Systems
2. Market Analysis
They have reviewed both the projects and HVC’s objective is to maximize the net present value of the total investment. HVC has the option to invest in both the projects in a certain ratio or invest in either of the two; whichever meets the objective of maximizing net present value.
Statement of the Problem
The dilemma that HVC faces is to either invest in both the projects in a certain proportion or invest in any of the two. HVC believes that both of the investment opportunities are worth pursuing. Therefore, the alternatives HVC has are: Make proportionate investments in both of the alternatives
Invest completely in security systems or market analysis
Causes of the Problem
HVC has two firms to invest with:
1. Security Systems: They need additional capital to develop an internet security software package. 2. Market Analysis: They need additional capital to develop a software package for conducting customer satisfaction surveys. Company
Net present value of Security Systems is $1,800,000 and Market Analysis is $1,600,000.
Decision Criteria and Alternative Solutions
The decision criteria for choosing the investment is maximizing net present value. So the alternatives HVC has are: Make proportionate investments in both the alternatives.
Invest completely in Security Systems or Market Analysis
When HVC invests in 60.87% of Security Systems’ project and 86.95% of Market Analysis project, HVC maximizes its net present value to $2,486,860 (Please see following table). At this investment rate, we find that, there is some slack which...
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