Lockheed Tri Star

Investment summary and Lockheed Tri Star Problem Sets February 25, 2013 1a. The results of NPV, payback and IRR calculations are the following. For payback method, Rainbow Product provide pay back the original investment approachs after 7 years. Net Present Value is -$946 and IRR is 11. 49%. Rainbow Products should not purchase the cable car according to the results of NPV and IRR calculation. The net present value of purchasing this new equipment is detrimental, and the midland rate of return is less than the cost of capital thus two calculations confirm that the investment will not provide additional value to the company.Of course the payback method shows that the instrument will have paying back the cost in 7 years but does not take into consideration discounting present values. 1b. If Rainbow accepts the Good As New work plan, net present value will be a decreed $2,500 and IRR will be 12. 86%, greater than the cost of capital. The investment would as well pay back the cost in 8 years. Rainbow should purchase the cable car under this service plan as it results in a haughty net value and the internal rate of return is greater than the cost of capital. c. If Rainbow chooses the reinvestment option, net present value is $15,000 and IRR is 15. 43%. Therefore, the best investment close is to accept option C, where engineers reinvest 20% of the savings that help cash flows draw 4% in perpetuity. Figure 1 (applicable to question 1a1c) 2. Using the IRR rule, I recommend renting a bigger stand as it yields the sterling(prenominal) rate of return. Using the NPV rule, I recommend building a larger stand.IRR rule can be misleading in this case as this problem is comparing 4 mutually exclusive projects and given the stats, IRR for unrivaled out of four of these projects yields a much higher value, but none of these IRR values take discounting rate into consideration. Therefore, NPV is a better method. Figure 2 3. The NPV of this project is $100,000. 1,10 0 shares of common stock should be issued at the current value of $100. Issuing new stocks will increase shares of the stock in the merchandise and therefore reduce the value of the stock of existing shareholders. Lockheed Tri Star racing shell QuestionsAt 210 unit production levels, the real value of the Tri Star program is negative $584. 04 million. At jibe-even production of 300 units, Lockheed actually lost nearly $274 million. At around 400 production units, Lockheed would achieve economic break even. The last to pursue the Tri Star program was unreasonable due to a miscalculated break even point. At 210 unit production, the net present value was roughly negative $182 million referring that Lockheed would have needed to produce somewhere between 210 units to 300 units to achieve true break even.In addition, given the overly upbeat 10% growth rate that calculated double the fit of true aircraft commercialise, Lockheed would have needed to either capture more than 50% o f the market for aircraft to breakeven. Between 1967 and 1971, the price of Lockheeds common stock dropped about $50. With 11. 3 million shares outstanding, this comes to about -$565 million. We see that the original NPV with 210 unit production results in about similar value as the drop in the total value of the common stocks outstanding.