Investment Analysis and Lockheed Tri Star

Only available on StudyMode
  • Download(s) : 707
  • Published : December 2, 2012
Open Document
Text Preview
Investment Analysis and Lockheed Tri Star
Group effort
Total points: 100 (Course grade 25%)

This case comprises four serially numbered stand-alone problems and the fifth one appears with the title of Lockheed Tri-Star. You are required to offer your calculations of values as indicated below. In addition to the calculations, write a brief summary of your findings in about 100 words for each problem.

1) Rainbow Products20 points
| Machine Purchase| Machine plus service contract| Enhanced Machine| Payback period| 7 Years| 7.78 Years| 7.65 Years|
NPV| ($945.68)| $2,500.00| $15,000.00|
IRR| 11.49%| 12.86%| 15.43%|
Decision (Yes/No)| NO| YES| YES|

We would advise Rainbow Products to not purchase the paint-mixing equipment unless they decided take on the additional $500 per year expenditure to service the machine, or decided to reinvest 20% of the yearly cost savings back into new machine parts. Either of the last two options would benefit the company, unlike the first option, as they provide both a positive Net Present Value (NPV) and Internal Rate of Return (IRR) greater than the Cost of Capital. Although the last two options have longer Payback Periods than the first option, using Payback Period to make a determination in this example is not suitable because of the shortcomings of the method.

2) Concession Stand20 points
Criteria| Add a new window| Update Equipment| New Stand| Rent| Any other option? – Wildcard – Add a New Window AND Update Existing Equipment| NPV ($)| $25,461.91| $2,514.18| $34,825.76| $28,469.88| $27,976.08| NPV Rank – No WildcardNPV Rank – Wildcard| 34| 45| 11| 22| 3| IRR (%)| 34.62%| 18.01%| 31.21%| 1207.61%| 28.10%|

IRR Rank – No WildcardIRR Rank – Wildcard| 22| 45| 33| 11| 4| MIRR (%)| 26 .77%| 16.90%| 24.82%| 255.21%| 23.01%|
MIRR Rank – No WildcardMIRR Rank – Wildcard| 22| 45| 33| 11| 4|

It would be in the best interest...
tracking img