# Case Study: Investment Analysis and Lockheed Tri Star I

MGMTS-2700

Professor Hamza Abdurezak

Harvard University

Yang Zhong

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 machine.

C. NPV: =Co+ C1…..n/(1+i)^1….n

= -35,000(4000/(0.12-0.04))

=-35,000+50,000

=15,000

NPV is positive so rainbow should reinvest the cost saving into the machine annually.

2.

Cash Flow:

Investment Y1 Y2 Y3 IRR NPV@15%

1. -75k44k44k44k34.63% 25,461.91

2. -50k23k23k23k18.01% 2,514.18

3. -125k70k70k 70k 31.21%34,825.76

4. - 1k12k13k14k1207.06%28,469.88

5. -125k67k67k 67k28.10% 27,976.08

1,Using IRR I recommend the (4)

2, Using NPV I recommend the proposal (3)

3,NPV is better!

The NPV method is better because it shows the most cash flow as the highest. Because the discount rate is 15%, it is building a new both is prioritized higher.

4.

1, NPV=PV-Investment

=210k-110k=100k

2. Assuming issue N shares when price is P.

N*P=110,000(1)

P=1,210,000/(10,000+N) (2)

Then computing the result

So N=1000 P=$110

3, Stock price rises up $10 Stock holder make the profit.

Out cash flow in cash flownet cash flow

1967-100-100

1968-200-200

1969-200-200

1970-200140 -60

1971-200-490140-550

1972-490560 70

1973 -490560 70

1974-490560 70

1975-490560 70

1976-490420-70

1977420420

In total -584.05

Acc profit -480

Cost: 14 $mm

Units Per Year: 35

Revenue 16

Quantity: 210

NPV=-584.05mm

Out cash flow in cash flownet cash flow

1967...

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