CASE 7: INVESTMENT ANALYSIS AND LOCKHEED TRI STAR INVESTMENT ANALYSIS QUESTION 1: A) Payback, NPV, IRR: (35,000) 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 1 (35,000) 2 3 4 5 6 7 8 5,000 5,000 5,000 5,000 5,000 5,000 5,000 9 Machine Cost Duration (years) Cash Flows Cost of capital Payback (years) 35000 15 5000 12% total cost annual cash flow 10 11 12 13 14 15 7 NPV IRR present value of cash inflows - present value of
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LOCKHEED TRI STAR Analysis & Recommendations Toby Odenheim 10‐OCT‐2013 Executive Summary With the L-1011 Tri Star program, Lockheed, well respected for military aircraft contracts, started to move into the civilian commercial aviation sector in direct competition with Airbus, McDonnell Douglas and Boeing. By 1971, having already invested $700 million in development costs, Lockheed was struggling with cash flow and sought $250 Million in federal
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LOCKHEED TRI STAR CASE STUDY 10/18/2010 Group #8 Case Write-Up Lockheed Tri Star Case Study EXECUTIVE SUMMARY Although highly regarded by the military, Lockheed sought to move into the lucrative civilian commercial aviation sector and compete with Boeing, McDonnell Douglas and Airbus. Lockheed began design and testing in 1966 on their entry, the “Tri Star”, which boasted a range of over 6,000 miles with nearly 400 passengers and speeds of close to 600 mph. They had already invested
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Case study: Investment Analysis and Lockheed Tri Star MGMTS-2700 Professor Hamza Abdurezak Harvard University Yang Zhon 1> A. Payback, NPV, IRR, Should purchase or not? Payback: $35,000/5000=7 year NPV: =Co+ C1…..n/(1+i)^1….n Co=-3,5000 CF1-CF15= 5,000; I= 12 Computing result is $-945.67 IRR: 11.49% NPV is negative and IRR is lower 12% so reject the proposal. B. NPV: =Co+ C1…..n/(1+i)^1….n NPV= -35000+(4500/.12) =2500 NPV is positive so should purchase the
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From: Maureen Farrell-JacobsR e: Lockheed L-1011 Tri-Star Case Study Part 1: Recommendation Proceed to obtain the $250 million in federal loan guarantees to complete the L-1011 Tri Star program. Seek military aircraft contracts in addition to the civilian aircraft contracts thereby spreading the risk into Lockheed’s well-established military market rather than exclusively into the commercial aircraft market. By making the above changes, Lockheed will potentially yield a NPV of $149.85
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Recommendation I recommend that the investment decision made by Lockheed to embark on the Tri Star program was unreasonable. According to my analysis, the company could have terminated this project and invested its capital in a more profitable investment. Eventually, this poor decision resulted in dramatic loss of wealth for the Lockheed shareholders totaling a loss of $766 million in stock value. Rationale for Decision The Lockheed case illustrates the significance of NPV analysis in Capital Budgeting
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2013 Lockheed TriStar Case Study Group 6 Leon Krolikowski Sitaram Koppaka Brian Manning Tushar Mahajan Ryan Maggiorini Nicholas Manning UNIVERSITY OF MASSACHUSSETS SUMMER 2013 SCH MGMT 640 PROFESSOR RAJ GUPTA Table of Contents Executive Summary 2 Introduction/Motivation 3 Data Analysis and Results 4 Conclusion 8 Appendix 9 References 10 Executive Summary Lockheed’s L-1011 Tri Star Airbus program was a long-term, capital-intensive endeavor projected to strongly
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Lockheed Tristar (1) Should Lockheed have pursued the Tri Star project in 1967? What are the main concerns with their analysis of the project? There are multiple different factors to look at when deciding if Lockheed should have pursued the Tri Star project in 1967. There are 6 techniques that are generally applied to assist in this decision: Internal Rate of Return (IRR), Net Present Value (NPV), Payback Method, Discounted Payback Method, Accounting Rate of Return, and Profitability Index. The
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Rich Reynolds Financial Decision Making 8/17/10 To: Lockheed Investment Committee From: Lockheed CFO Date: August 18, 1965 Subject: Tri-Star Project The purpose of this memo is to explain why my recommendation is to not approve the Tri-Star project, which would span over the period of 1967 through 1976. This project relating specifically to the L-1011 Aircraft would cause a considerable amount of stress on the company’s financial performance. Below you will find
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Memorandum for Lockheed’s L1011 Tristar Project Recommendation In 1967, Lockheed Corp., the American aerospace company that monopolized the military market for aircrafts, set out to compete in the commercial sector by replacing the Boeing 747 and the McDonnell Douglas DC-10. Lockheed invested tremendous resources into the Tristar thereby jeopardizing the entire corporation’s well-being on this singular project. Tristar distinguished itself from other aircrafts of its kind thanks to the
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