Case Study: Investment Analysis and Lockheed Tri Star I

Case study: Investment Analysis and Lockheed Tri Star

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. -75k 44k 44k 44k 34.63% 25,461.91
2. -50k 23k 23k 23k 18.01% 2,514.18
3. -125k 70k 70k 70k 31.21% 34,825.76
4. - 1k 12k 13k 14k 1207.06% 28,469.88
5. -125k 67k 67k 67k 28.10% 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 flow net cash flow
1967 -100 -100
1968 -200 -200
1969 -200 -200
1970 -200 140 -60
1971 -200 -490 140 -550
1972 -490 560 70
1973 -490 560 70
1974 -490 560 70
1975 -490 560 70
1976 -490 420 -70
1977 420 420
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 flow net cash flow
1967