Business Case Problem 3: Hart Venture Capital

1. UGC estimated that it would need C$150 million to carry out its strategic plans over the coming two years. Will its internal resources provide reliable funding for this program? How much external funding might it need? The company needs to spend C$150 million, which covers the installation of high-throughput elevators (7 or 8 more at $9 million each) and the upgrades of 15 elevators at $3 million each. The rest of the money is needed for the funding of the expansion of Crop Protection Services and Livestock services division.

10. What is the net present value (NPV) of a long-term investment project? Describe how managers use NPVs when evaluating capital budget proposals.

3. Estimate the project’s NPV. Would you recommend that Tucker Hansson proceed with the investment?

2. New bank credit facility, 600 million cash on hand to take advantage of opportunities that may arise

Venture capital financing begins with the start of a plan. For funding business, a stream of courses of action is fundamental. There may be diverse wellsprings of a start of courses of action. One such source is referral system in which bargains are alluded to venture capital by their parent affiliations, exchange accomplices, industry connection, buddies, et cetera.

7. What, if any, expenses are involved with this project? How will you be able to pay for these expenses?

4. What kind of debt (agency debt, bank debt, or Rule 144a bonds) should the sponsors of the project use to fund the deal? What are the advantages and disadvantages of each kind of debt? In your view will project bonds receive an investment grade rating? What is the“weakest link” of the project? How can they improve the likelihood of getting an investment grade?

$50,000 for an annual contract, it should invest $450,000 to individuals who extract value from

The present value of the net incremental cash flows, totaling $5,740K, is added to the present value of the Capital Cost Allowance (CCA) tax shield, provided by the Plant and Equipment of $599K, to arrive at the project’s NPV of $6,339K. (Please refer to Exhibit 4 and 5 for assumptions and detailed NPV calculations.) This high positive NPV means that the project will add a significant amount of value to FMI. In addition, using the incremental cash flows (excluding CCA) generated by the NPV calculation, we calculated the project’s IRR to be 28%. This means that the project will generate a higher rate of return than the company’s cost of capital of 10.05%. This is also a positive indication that the company should undertake the project.

__________ says to forecast the firm’s cash flows, and analyze the incremental cash flows of alternative decisions.

4. How should Pioneer set capital budgeting criteria for different projects within a given division? What distinctions among projects might be captured in these criteria? How should the different standards be determined?

Question 2. Evaluate the manner in which Randall and Hubbard have implemented their investment center concept. The pitfalls did they apparently not anticipate.

The option mentioned in Q4 is to make one initial investment at the beginning of Year 1. The alternative to be discussed in question 5 is different.

Q2. Provide a full-page plot of the Capital Allocation Line for the case in Q1. Label the axes and locate cash, D. Equity, D. Bonds, and your optimal complete portfolio clearly on the plot. You may draw this plot by hand.

(RQ 3-12): In the last decade there has been a shift towards the direct transfer of funds from investors to the corporate sector. Examine some of the reasons for this trend.