Reference no: EM131315797
Hart Venture Capital (HVC) specializes in provding venture capital for software devlopment 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 Security Systems stock, the firm has asked HVC to provide $600,000 in year 1, $600,000 in year 2, and $250,000 in year 3. In exchange for Market Analysis stock, the firm has asked HVC to provide $500,000 in year 1, $350,000 in year 2, and $400,000 in year 3. 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.
HVC's financial analysis team reviewed both projects and recommended that the company's 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 three-year period as well as the capital outflows that are necessary during each of the three years. Using an 8% rate of return, HVC's financial analysis team estiamtes that 100% funding of the Security Systems has a net present value of $1,800,000, and 100% of the Market Analysis has a net present value of $1,600,000.
HVC has the option tot fund any percentage of the Security Systems and Market Analysis projects.
a) What is the recommended percentage of each project that HVC should fund and the net present value of the total investment?
b) 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?
c) 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?
d) What would the capital allocation plan look like if an additoinal $100,000 is made available?
|
How much would you offer for this annuity
: Suppose you are examining an asset that promised to pay $500 at the end of each of the next 5 years. If you are looking for 10% per annum interest on your money, how much would you offer for this annuity?
|
|
Part-time consulting work
: Eric borrowed money last year to buy a new car for his part-time consulting work. The loan is a 3-year loan with 36 monthly payments. Due to his bad credit history, the loan he got is with a 12% annual interest rate compounded monthly. how much does ..
|
|
What is the value of uppers shares today
: The next dividend for the Upper Growth Company will be $0.50 per share. Investors require a 14% return on companies such as Upper. Upper’s dividend increases by 5% every year. Based on the dividend growth model, what is the value of Upper’s shares to..
|
|
The present value to the owner
: A pine plantation returns nothing to its owner in the first 2 years. In the following 2 years, the returns are $100,000 and $150,000, respectively. The returns can be invested at 8% per annum. The present value to the owner is $_________.
|
|
Develop an internet security software package
: Hart Venture Capital (HVC) specializes in provding venture capital for software devlopment and Internet applications. Currently HVC has two investment opportunities: Security Systems, a firm that needs additional capital to develop an Internet securi..
|
|
Calculate the monthly repayment and the remaining loan
: Luke borrows $800,000 from ANZ to set up a medical practice. He agrees to pay a fixed interest rate of 12% per annum compounding monthly and to repay by equal monthly instalments over 20 years. Calculate the monthly repayment and the remaining loan a..
|
|
Considering two savings options
: You are considering two savings options. Both options offer a 4% rate of return. The first option is to save $1,200, $1,500, and $2,000 a year over the next three years, respectively. The other option is to save one lump sum amount today. If you want..
|
|
Why should capital budgeting for subsidiary projects
: Why should capital budgeting for subsidiary projects be assessed from the parent’s perspective? What additional factors that normally are not relevant for a purely domestic project deserve consideration in multinational capital budgeting?
|
|
Ow much money will you receive if you redeem all of shares
: Seven years ago, you purchased 216.34 shares of a mutual fund. Since then, you have reinvested your fund dividends and acquired an additional 31.02 shares. The fund currently has an NAV of $38.06. How much money will you receive if you redeem all of ..
|