Investment Analysis and Lockheed Tri Star

Harvard Business School Case #291-031

Case Software #XLS-130

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 Incremental Cash Flows
Project Investment Year 1 Year 2 Year 3 IRR
Add a New Window -$75,000 44,000 44,000 44,000 35%
Update Existing Equipment -50,000 23,000 23,000 23,000 18%
Build a New Stand -125,000 70,000 70,000 70,000 31%
Rent a Larger Stand -1,000 12,000 13,000 14,000 1208%
Recommendation Rent a larger stand

The differences in the IRR and NPV rankings exists because:

Renting a larger stand would give more returns as compared to the initial investments.
Building a new stand would require more investments and then will produce more returns but will still give lesser return on

A larger stand should be rented if we have lesser investment available though building a new stand is more
profitable if we can get the initial funds.
 NPV
25,462
2,514
34,826
28,470
Build a new stand

turns but will still give lesser return on investments.

uilding a new stand is more

Scenario Summary
Current Values: At planned production level At break-even level
Changing Cells:
$B$17 210 210 300
$B$18 16 16 12.5
Result Cells:
$B$19 ₹ -813.10 ₹ -813.10 ₹ -274.38
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
At least cost of production

500
11

₹ 441.03
 End of Year Time “Index” Cash Flow ($mm) Inventory Cost ($mm) Revenue ($mm)
1967 t=0 -$100
1968 t=1 -$200
1969 t=2 -$200
1970 t=3 -$200 $140.00
1971 t=4 -$200 -$560.00 $140.00
1972 t=5 -$560.00 $560.00
1973 t=6 -$560.00 $560.00
1974 t=7 -$560.00 $560.00
1975 t=8 -$560.00 $560.00
1976 t=9 -$560.00 $420.00
1977 t=10 $420.00

Discount Rate 10% No. of Units Production Cost

210 14
Number of Units 210 300 12.5
Production Cost 16 500 11
NPV ₹ -813.10
Net Cash Flow
-$100
-$200
-$200
-$60
-$620
$0
$0
$0
$0
-$140
$420

Break-even Units
1028.076612548
479.10366410005
312.32707216649

1` J
 At planned production level

210
16

Page 8
 At break-even level

300
12.5

Page 9
 At least cost of production

500
11

Page 10
A B
-9000 -9000
6000 1800
5000 1800
4000 1800
0 1800
0 1800

3592.03606311 ₹ -8,820.00