This action might not be possible to undo. Are you sure you want to continue?

Welcome to Scribd! Start your free trial and access books, documents and more.Find out more

SIIB Harika Reddy R 11020241041

**LOCKHEED TRISTAR CASE STUDY ANSWER 1
**

Total Units Number of units per year Cost of production Sale Price Rate of discounting 210 35 14 16 10%

NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 140 1971 4 -200 140 -490 1972 5 1973 6

140 -490 420 70

140 -490 420 70

-100

-200

-200

-60

-550

NPV At 10% rate of discounting At 15% rate of discounting At 20% rate of discounting

$

-584.05

The value of the Tristar program at 210 units of production is $ -584.05 mn The value of the Tristar program at 210 units of production is $ -580.87 mn The value of the Tristar program at 210 units of production is $ -563.86 mn

1974 7

1975 8

1976 9

1977 10

140 -490 420 70

140 -490 420 70

-490 420 -70

420 420

**LOCKHEED TRISTAR CASE STUDY ANSWER 2
**

Total Units Number of units per year Cost of production Sale Price Rate of discounting 300 50 12.5 16 10%

NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 200 1971 4 -200 200 -625 1972 5

200 -625 600 175

-100

-200

-200

0

-625

NPV At 10% rate of discounting At 15% rate of discounting At 20% rate of discounting

$

-274.38

As per NET PRESENT VALUE method, Lockheed doesnot break even at 300 units of As per NET PRESENT VALUE method, Lockheed doesnot break even at 300 units of As per NET PRESENT VALUE method, Lockheed doesnot break even at 300 units of

1973 6

1974 7

1975 8

1976 9

1977 10

200 -625 600 175

200 -625 600 175

200 -625 600 175

-625 600 -25

600 600

ot break even at 300 units of production (npv= -274.38) ot break even at 300 units of production (npv= -355.62) ot break even at 300 units of production (npv= -396.43)

**LOCKHEED TRISTAR CASE STUDY ANSWER 3
**

Total Units Number of units per year Cost of production Sale Price Rate of discounting 300 50 12.5 16 10%

Accounting profit calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 200 1971 4 -200 200 -625 1972 5

200 -625 600 175

-100

-200

-200

0

-625

Accounting Profit

$

150.00

Accounting breakeven is achieved when 300 units are produced at $12.5 million Accounting breakeven is not exactly roght as we donot know the continuous effect of learning curve on the production cost of th

Total Units Number of units per year Cost of production Sale Price Rate of discounting

480 80 12.5 16 10%

NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 320 1971 4 -200 320 -1000 1972 5

320 -1000 960 280

-100

-200

-200

120

-880

NPV At 10% rate of discounting At 15% rate of discounting

$

1.37

Breakeven is achieved using NPV method at 480 units of production at $12.5 per unit Breakeven is achieved using NPV method at 500 units of production at $11 per unit pr

At 20% rate of discounting

Breakeven is achieved using NPV method at 507 units of production at $11 per unit pr

1973 6

1974 7

1975 8

1976 9

1977 10

200 -625 600 175

200 -625 600 175

200 -625 600 175

-625 600 -25

600 600

urve on the production cost of the aircraft

1973 6

1974 7

1975 8

1976 9

1977 10

320 -1000 960 280

320 -1000 960 280

320 -1000 960 280

-1000 960 -40

960 960

f production at $12.5 per unit production cost f production at $11 per unit production cost (400 units gives a loss of $146.43)

f production at $11 per unit production cost

LOCKHEED TRISTAR CASE STUDY ANSWER 4

A

No the decision to pursue Tristar was not reasonable. The decision was based on the assumption tat the demand for the market would grow at 10% Total demand 775 Share in demand 35% 40% Expected Demand 271.25 310

But it is said that 5% would be a more realistic growth rate Total demand 323 Share in demand 35% 40% Expected Demand 113.05 129.2

This shows that Lockheed had over estimated the demand for the Tristar aircraft Break even sales is 480 units at $12.5 production cost per unit This confirms our belief that Lockheed would not even be able to Break even as expected demand doesnot cross 13

B

No. of shares Share price as on Jan '67 Jan '71 Total dip in share price

11.3 mn 64 11 598.9

This total dip in share holder value is similar to the NPV of the project at 210 units of production This shows that the project's NPV and the share price are correlated and that the price of Lockheed shares are dep

pected demand doesnot cross 130 units

of production rice of Lockheed shares are dependent on the project cashflows

**LOCKHEED TRISTAR CASE STUDY ANSWER 1 (assuming continuous learning curv
**

units cost Total Units Number of units per year COST per unit Sale Price Rate of discounting 0 14 210 35 12.95 16 10% 300 12.5 500 11

NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 140 1971 4 -200 140 -453.25

-100

-200

-200

-60

-513.25

NPV At 10% rate of discounting At 15% rate of discounting At 20% rate of discounting

$ -463.80

The value of the Tristar program at 210 units of production is $ -463.80 m The value of the Tristar program at 210 units of production is $ -489.43 m The value of the Tristar program at 210 units of production is $ -493.14 m

ntinuous learning curve)

1972 5

1973 6

1974 7

1975 8

1976 9

1977 10

140 -453.25 420 106.75

140 -453.25 420 106.75

140 -453.25 420 106.75

140 -453.25 420 106.75

-453.25 420 -33.25

420 420

its of production is $ -463.80 mn its of production is $ -489.43 mn its of production is $ -493.14 mn

**LOCKHEED TRISTAR CASE STUDY ANSWER 1 (assuming continuous learning curv
**

units cost Total Units Number of units per year COST per unit Sale Price Rate of discounting 0 14 300 50 12.5 16 10% 300 12.5 500 11

NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 200 1971 4 -200 200 -625

-100

-200

-200

0

-625

NPV At 10% rate of discounting At 15% rate of discounting At 20% rate of discounting

$ -274.38

As per NET PRESENT VALUE method, Lockheed doesnot break even at 30 As per NET PRESENT VALUE method, Lockheed doesnot break even at 30 As per NET PRESENT VALUE method, Lockheed doesnot break even at 30

ntinuous learning curve)

1972 5

1973 6

1974 7

1975 8

1976 9

1977 10

200 -625 600 175

200 -625 600 175

200 -625 600 175

200 -625 600 175

-625 600 -25

600 600

ckheed doesnot break even at 300 units of production (npv= -274.38) ckheed doesnot break even at 300 units of production (npv= -355.62) ckheed doesnot break even at 300 units of production (npv= -396.43)

**LOCKHEED TRISTAR CASE STUDY ANSWER 1 (assuming continuous learning curv
**

A Units Cost Total Units Number of units per year COST per unit Sale Price Rate of discounting 0 14 270 45 12.65 16 10% 300 12.5 500 11

Accounting Profit Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 180

-100

-200

-200

-20

Accounting Profit

$

4.50

The Break even point as per accounting profit occurs at 270 units of production B Units Cost Total Units Number of units per year COST per unit Sale Price Rate of discounting 0 14 388 64.66667 11.84 16 10% 300 12.5 500 11

NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 258.6667

-100

-200

-200 58.66667

NPV

$

0.09

At 10% rate of discounting At 15% rate of discounting At 20% rate of discounting

The Break even point as per NPV method occurs at 388 units o The Break even point as per NPV method occurs at 446 units o The Break even point as per NPV method occurs at 507 units o

ntinuous learning curve)

1971 4 -200 180 -569.25

1972 5

1973 6

1974 7

1975 8

1976 9

1977 10

180 -569.25 540 150.75

180 -569.25 540 150.75

180 -569.25 540 150.75

180 -569.25 540 150.75

-569.25 540 -29.25

540 540

-589.25

1971 4

1972 5

1973 6

1974 7

1975 8

1976 9

1977 10

-200 258.6667 258.6667 258.6667 258.6667 258.6667 -765.653 -765.653 -765.653 -765.653 -765.653 776 776 776 776

-765.653 776

776 776

-706.987 269.0133 269.0133 269.0133 269.0133 10.34667

PV method occurs at 388 units of production PV method occurs at 446 units of production PV method occurs at 507 units of production

- ECON252_06_020211_MC
- Investment Analysis and Tri Star Lockheed - FULL FINAL
- ValuEngine.com Pick Priceline.com (PCLN,$PCLN) Up Significantly
- Lockheed Tristar Case analysis
- Portfolio Mgmt MOdels
- HBS Case Lockheed
- ch9
- Lockheed Tristar Case Similar Solution
- Excel Sheet for Cost of Capital
- Lockheed Tristar Project
- Volatility Inside
- Lockheed Tristar Case Solution
- Striking a Balance
- LocheedCaseStudyGroup1
- Fins 2624 Quiz 2
- Valuing Projects
- Decision Tree-cap Bud
- Lockheed Tristar
- Microeconomics - GDP
- Lockheed
- Week 4a
- Lockeed 5 Star
- Principles of Money & Banking
- Henry Tam and MGI Team
- Fin350 Week 7 Module 7 Practice Problems
- Homework Assignment 1 Key
- 1RevisedEMBACourseDescriptions.pdf
- Assign 4 Jones m
- A Practitioner’s Defense of Return PredictabilityA Practitioner’s Defense of Return Predictability
- Valuing Capital Investment Projects for practice.xls

Are you sure?

This action might not be possible to undo. Are you sure you want to continue?

We've moved you to where you read on your other device.

Get the full title to continue

Get the full title to continue listening from where you left off, or restart the preview.

scribd