Lockheed management Essay

We examined the decision to invest in the Tri-Star project by forecasting the cash flow associated with the project for a strength of 210 planes. We similarly asked what a valid estimate of the NPV of the Tri-Star project at a volume of 210 planes as of 1967 would be. We found this to be -$584 M. This was clearly an unacceptable NPV for capital budgeting on the project. A break-even analysis revealed that the project reached economic break-even with the production of 275 planes at $12.5 M per unit of measurement but did not reach value break-even at that direct of production. Despite industry analysts predicting 300 units as Lockheeds break-even sales point, at this take aim, net present value remained insufficient to cover costs at negative $274 million.If the company had performed a true value break-even analysis, management would allow realized that roughly 400 Tri Star aircraft (about 67 per year for vi years) costing somewhere between $11.75 million and $12 million per un it would have to be sold in order to break even. The investment decision made by Lockheed to pursue the Tri Star program was not a reasonable one. A true value analysis shows that at the production level of 210 units, the project would result in an economic acquittance of $584.05 million and a profit loss of $480 million. In addition to miscalculating the break-even level of production, Lockheed management overestimated the growth rate of air travel industry.