Hart Venture Capital
Hart Venture Capital Case Problem 3
After performing an analysis of HVC’s investment problem, I found that the company’s objective was to maximize the net present value of the total investment in Security Systems and Market Analysis. To find the maximum net present value and analyze the numbers, I set up the model shown below.
Max 1,800,000*SS + 1,600,000*MA
s.t. 600,000*SS + 500,000*MA ≤ 800,000 600,000*SS + 350,000*MA ≤ 700,000 250,000*SS + 400,000*MA ≤ 500,000 SS,MA ≥ 0
After solving the above model for an optimal solution, I found that HVC should invest in 60.9% of the Security Systems project and 87% of the Market Analysis project. These recommended percentages give an optimal solution of $2,486,957 for the net present value of the total investment. A capital allocation plan for the coming three-year period is shown below. When using Management Scientist, a rounding error occurred with the optimal percentages for each project. You can see this error in the Year 1 and Year 3 totals for HVC Investment. The totals for these 2 years are a little bit above what the constraints should hold them at.
| SS | MA | HVC Investment | Year 1 | 365,400 | 435,000 | 800,400 | Year 2 | 365,400 | 304,500 | 669,900 | Year 3 | 152,250 | 348,000 | 500,250 |
If HVC were willing to commit an additional $100,000 during the first year, the optimal solution and percentages would change. This increase in investment would result in a recommendation of funding 68.9% of the Security Systems project and 82% of the Market Analysis project. This slight change in percentages gives an optimal solution of $2,550,820 for the net present value of total investment, an increase of $63,863. A capital allocation plan for the coming three-year period with an additional $100,000 during the first year is shown below.
| SS | MA | HVC Investment | Year 1 | 413,400 | 410,000 | 823,400 | Year 2 | 413,400 | 287,000 | 700,400 |
After performing an analysis of HVC’s investment problem, I found that the company’s objective was to maximize the net present value of the total investment in Security Systems and Market Analysis. To find the maximum net present value and analyze the numbers, I set up the model shown below.
Max 1,800,000*SS + 1,600,000*MA
s.t. 600,000*SS + 500,000*MA ≤ 800,000 600,000*SS + 350,000*MA ≤ 700,000 250,000*SS + 400,000*MA ≤ 500,000 SS,MA ≥ 0
After solving the above model for an optimal solution, I found that HVC should invest in 60.9% of the Security Systems project and 87% of the Market Analysis project. These recommended percentages give an optimal solution of $2,486,957 for the net present value of the total investment. A capital allocation plan for the coming three-year period is shown below. When using Management Scientist, a rounding error occurred with the optimal percentages for each project. You can see this error in the Year 1 and Year 3 totals for HVC Investment. The totals for these 2 years are a little bit above what the constraints should hold them at.
| SS | MA | HVC Investment | Year 1 | 365,400 | 435,000 | 800,400 | Year 2 | 365,400 | 304,500 | 669,900 | Year 3 | 152,250 | 348,000 | 500,250 |
If HVC were willing to commit an additional $100,000 during the first year, the optimal solution and percentages would change. This increase in investment would result in a recommendation of funding 68.9% of the Security Systems project and 82% of the Market Analysis project. This slight change in percentages gives an optimal solution of $2,550,820 for the net present value of total investment, an increase of $63,863. A capital allocation plan for the coming three-year period with an additional $100,000 during the first year is shown below.
| SS | MA | HVC Investment | Year 1 | 413,400 | 410,000 | 823,400 | Year 2 | 413,400 | 287,000 | 700,400 |