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  • Lockheed Tristar Case Solution

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    Prakash Nishtala
    2K vizualizări3 pagini
    This document contains information on three investment projects (A, B, C) for Lockheed with different payback periods and IRRs. Project A has an IRR of 11.49% and NPV of -$946, so it is not recommended. Project B has an IRR of 12.86% and NPV of $2,500 and is recommended, but Project C has the highest IRR of 15.43% and NPV of $15,000, so it is the best option. The document also includes calculations to show that for an investment to have a 4% growth rate, the ROE must be 20% given a plowback ratio of 20%.

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    Corporate Finance Case

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    This document contains information on three investment projects (A, B, C) for Lockheed with different payback periods and IRRs. Project A has an IRR of 11.49% and NPV of -$946, so it is not recommended. Project B has an IRR of 12.86% and NPV of $2,500 and is recommended, but Project C has the highest IRR of 15.43% and NPV of $15,000, so it is the best option. The document also includes calculations to show that for an investment to have a 4% growth rate, the ROE must be 20% given a plowback ratio of 20%.

    Drepturi de autor:

    Attribution Non-Commercial (BY-NC)
    Descărcați ca XLS, PDF, TXT sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    2K vizualizări3 pagini

    Lockheed Tristar Case Solution

    Încărcat de

    Prakash Nishtala
    This document contains information on three investment projects (A, B, C) for Lockheed with different payback periods and IRRs. Project A has an IRR of 11.49% and NPV of -$946, so it is not recommended. Project B has an IRR of 12.86% and NPV of $2,500 and is recommended, but Project C has the highest IRR of 15.43% and NPV of $15,000, so it is the best option. The document also includes calculations to show that for an investment to have a 4% growth rate, the ROE must be 20% given a plowback ratio of 20%.

    Drepturi de autor:

    Attribution Non-Commercial (BY-NC)
    Descărcați ca XLS, PDF, TXT sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    din 3

    Lockheed.

    xls

    Lockheed Tri-Star Case


    Exercise 1
    Project
    A
    B
    C

    Paybeck
    7
    8
    8

    Comment on g = b * ROE:

    IRR
    11.49%
    12.86%
    15.43%

    NPV

    Decision

    -946.00 No
    2,500.00 yes, but C is better
    15,000.00

    The plowback ratio is 20%. The ROE on this investment must be

    for net cash flows. To see this, Rainbow reinvests 20% of the $5,

    thus, the net cash flow at t= 0 is $4,000. This $1,000 reinvestme

    $1,200 additional savings at t =1 to bring the gross savings to $5

    to reinvest another 20%, which leaves the net cost savings at t =

    This gives the growth rate of the net cost savings at ($4,160 - $4,

    Lockheed.xls

    Calculations are in worksheet 1A.

    his investment must be 20% to achieve 4% growth rate

    einvests 20% of the $5,000 cost savings in the machine,

    This $1,000 reinvestment has 20% ROE, so it brings

    he gross savings to $5,200. From which, it continues


    net cost savings at t =1 to (1 - 20%)* $5,200 = $4,160.

    savings at ($4,160 - $4,000)/$4,000 = 4%.

    1A

    Three different ways to Calculate NPV:


    You can simply use the PV for annuities without using Excel.
    Calculation for Exercise 1(A)
    PV factor PV (C_t)
    0
    -35000
    1
    -35000
    1
    5000
    0.892857 4464.286
    2
    5000
    0.797194 3985.969
    3
    5000
    0.71178 3558.901
    4
    5000
    0.635518 3177.59
    5
    5000
    0.567427 2837.134
    6
    5000
    0.506631 2533.156
    7
    5000
    0.452349 2261.746
    8
    5000
    0.403883 2019.416
    9
    5000
    0.36061 1803.05
    10
    5000
    0.321973 1609.866
    11
    5000
    0.287476 1437.381
    12
    5000
    0.256675 1283.375
    13
    5000
    0.229174 1145.871
    14
    5000
    0.20462 1023.099
    15
    5000
    0.182696 913.4813
    IRR =
    11.49%
    NPV =
    -$945.68
    -945.678
    Alternatively, NPV could be calculated with the following formula
    NPV =
    -$945.68
    Remember again: The NPV function in Excel is equivalent to the PV in our textbook.

    Page 3

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