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NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 140 1971 4 -200 140 -490 1972 5 1973 6
-100
-200
-200
-60
-550
NPV At 10% rate of discounting At 15% rate of discounting At 20% rate of discounting
-584.05
The value of the Tristar program at 210 units of production is $ -584.05 mn The value of the Tristar program at 210 units of production is $ -580.87 mn The value of the Tristar program at 210 units of production is $ -563.86 mn
1974 7
1975 8
1976 9
1977 10
420 420
NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 200 1971 4 -200 200 -625 1972 5
-100
-200
-200
-625
NPV At 10% rate of discounting At 15% rate of discounting At 20% rate of discounting
-274.38
As per NET PRESENT VALUE method, Lockheed doesnot break even at 300 units of As per NET PRESENT VALUE method, Lockheed doesnot break even at 300 units of As per NET PRESENT VALUE method, Lockheed doesnot break even at 300 units of
1973 6
1974 7
1975 8
1976 9
1977 10
600 600
ot break even at 300 units of production (npv= -274.38) ot break even at 300 units of production (npv= -355.62) ot break even at 300 units of production (npv= -396.43)
Accounting profit calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 200 1971 4 -200 200 -625 1972 5
-100
-200
-200
-625
Accounting Profit
150.00
Accounting breakeven is achieved when 300 units are produced at $12.5 million Accounting breakeven is not exactly roght as we donot know the continuous effect of learning curve on the production cost of th
Total Units Number of units per year Cost of production Sale Price Rate of discounting
NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 320 1971 4 -200 320 -1000 1972 5
-100
-200
-200
120
-880
1.37
Breakeven is achieved using NPV method at 480 units of production at $12.5 per unit Breakeven is achieved using NPV method at 500 units of production at $11 per unit pr
Breakeven is achieved using NPV method at 507 units of production at $11 per unit pr
1973 6
1974 7
1975 8
1976 9
1977 10
600 600
1973 6
1974 7
1975 8
1976 9
1977 10
960 960
f production at $12.5 per unit production cost f production at $11 per unit production cost (400 units gives a loss of $146.43)
No the decision to pursue Tristar was not reasonable. The decision was based on the assumption tat the demand for the market would grow at 10% Total demand 775 Share in demand 35% 40% Expected Demand 271.25 310
But it is said that 5% would be a more realistic growth rate Total demand 323 Share in demand 35% 40% Expected Demand 113.05 129.2
This shows that Lockheed had over estimated the demand for the Tristar aircraft Break even sales is 480 units at $12.5 production cost per unit This confirms our belief that Lockheed would not even be able to Break even as expected demand doesnot cross 13
No. of shares Share price as on Jan '67 Jan '71 Total dip in share price
11.3 mn 64 11 598.9
This total dip in share holder value is similar to the NPV of the project at 210 units of production This shows that the project's NPV and the share price are correlated and that the price of Lockheed shares are dep
NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 140 1971 4 -200 140 -453.25
-100
-200
-200
-60
-513.25
NPV At 10% rate of discounting At 15% rate of discounting At 20% rate of discounting
$ -463.80
The value of the Tristar program at 210 units of production is $ -463.80 m The value of the Tristar program at 210 units of production is $ -489.43 m The value of the Tristar program at 210 units of production is $ -493.14 m
1972 5
1973 6
1974 7
1975 8
1976 9
1977 10
420 420
NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 200 1971 4 -200 200 -625
-100
-200
-200
-625
NPV At 10% rate of discounting At 15% rate of discounting At 20% rate of discounting
$ -274.38
As per NET PRESENT VALUE method, Lockheed doesnot break even at 30 As per NET PRESENT VALUE method, Lockheed doesnot break even at 30 As per NET PRESENT VALUE method, Lockheed doesnot break even at 30
1972 5
1973 6
1974 7
1975 8
1976 9
1977 10
600 600
ckheed doesnot break even at 300 units of production (npv= -274.38) ckheed doesnot break even at 300 units of production (npv= -355.62) ckheed doesnot break even at 300 units of production (npv= -396.43)
Accounting Profit Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 180
-100
-200
-200
-20
Accounting Profit
4.50
The Break even point as per accounting profit occurs at 270 units of production B Units Cost Total Units Number of units per year COST per unit Sale Price Rate of discounting 0 14 388 64.66667 11.84 16 10% 300 12.5 500 11
NPV Calculation Years Periods Initial cash flow Initial deposit Production Costs Final deposit Total cash flows 1967 0 -100 1968 1 -200 1969 2 -200 1970 3 -200 258.6667
-100
-200
-200 58.66667
NPV
0.09
The Break even point as per NPV method occurs at 388 units o The Break even point as per NPV method occurs at 446 units o The Break even point as per NPV method occurs at 507 units o
1972 5
1973 6
1974 7
1975 8
1976 9
1977 10
540 540
-589.25
1971 4
1972 5
1973 6
1974 7
1975 8
1976 9
1977 10
-200 258.6667 258.6667 258.6667 258.6667 258.6667 -765.653 -765.653 -765.653 -765.653 -765.653 776 776 776 776
-765.653 776
776 776
PV method occurs at 388 units of production PV method occurs at 446 units of production PV method occurs at 507 units of production