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GROUP NO. 4
DILIP T P (9074)
GANESH V (9075)
DATE: 07/01/10
EXECUTIVE SUMMARY
HART Venture capital specializes in providing venture capital for software devolepment and
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.
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STATEMENT OF THE PROBLEM
The dilemma faced by HVC is to either invest in both the projects in a certain proportion or
to invest in any of the two. HVC believed that both the investment opportunities were worth
pursuing.
HVC has two firms to invest with which are equally competent :
software package.
2. Market analysis: they need additional capital to develop a software package for
Net present value of Security systems is $ 1800000 and market analysis is $ 1600000.
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DECISION CRITERIA AND ALTERNATIVE SOLUTIONS
The decision criteria for choosing the investment are maximizing net present value.
RECOMMENDED SOLUTION
When HVC invests in 60.87% of Security Systems’ project and 86.95% of Market
Analysis project, HVC maximizes its net present value to $2486860 (Refer graph
1.1). At this investment rate, we find that, there is some slack which is of negligible
value, in the first and third years. This slack results from inaccuracy due to rounding
off. If there is no rounding off, there will not be any slack in the first and third years.
So the slack in the first and third years are neglected while making recommendations.
The slack fund of $30455 available in the second year may be reinvested in lucrative
Investment Pattern:
EXTERNAL SOURCING
• www.wikipedia.com
• http://www.akiti.ca/SimEq4Solver.html
1. When HVC invests in 60.87% of Security Systems’ project and 86.95% of Market
Analysis project, HVC maximizes its net present value to $ 2486860. The slack fund
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(negligible) (negligible)
3. Assuming that the additional $100000 is made available to HVC to be invested in any
year, HVC should choose to invest these funds in these proportions in the two projects
4. Assuming the additional $100000 is committed for the first year itself, the capital
5. As we saw in point 3 of this section, when an additional $100000 is invested, the net
present value goes up by $49140 with a slack of $89000. These slack funds may be
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