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. 8)| $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| $27,976. 08| NPV Rank – No WildcardNPV Rank – Wildcard| 34| 45| 11| 22| 3| IRR (%)| 34. 2%| 18. 01%| 31. 21%| 1207. 61%| 28. 10%| IRR Rank – No WildcardIRR Rank – Wildcard| 22| 45| 33| 11| 4| MIRR (%)| 26 . 77%| 16. 90%| 24. 82%| 255. 21%| 23. 01%| MIRR Rank – No WildcardMIRR Rank – Wildcard| 22| 45| 33| 11| 4| It would be in the best interest of the Concession Stand to either Build a New Stand, or Rent a Larger Stand. Under the NPV method, Building a New Stand would be the most beneficial option, with the Rent choice being the second best option.
Under the IRR and MIRR methods, the Rent choice would be a clear favorite while the Building a New Stand choice would be the third most beneficial option. Their choice in which action to take would depend upon which methodology best aligned with their operational goals, although NPV is a more commonly used and trusted approach than IRR because of several issues that can derail IRR calculations. 3) MBATech, Inc. 20 points Alternative| Cost to the city ($)| Increase IRR to 25%| $122,103|
Give 2-year payback| $256,522| NPV of $75,000 (at 20% discount)| $112,666| ARR of 40%| $173,913| Although the cost to the city could vary depending upon the timing of the subsidy payments due to the time value of money, our calculated costs reflect immediate payment of the subsidy during the initial investment period. With that said, the city would be wise in pursuing the NPV of $75,000 method as the cost of this method would be the least expensive of the four alternatives.
An upfront payment to MBA Tech, Inc. , from the city, for $112,666 would be sufficient in pushing the NPV of the project to the $75,000 limit. The city should avoid the 2-year payback method if at all possible as this would have the greatest cost by a substantial margin. 4) Valu-Added Industries, Inc. 10 points NPV of the project| $100,000| Number of shares to be issued| 1,000| Price per share| $110. 00| By issuing 1,000 shares to the public at $10. 0 per share, Valu-Added Industries will be financing the entire project through investors. This action will also indicate to current stockholders that the future market value of the shares of stock of the company should be higher in value. With no further information, it would appear that both Valu-Added Industries, and their stockholders, would benefit from the organization taking on this opportunity, and that the value of the company would only increase by doing so. ) Lockheed Tri Star30 points At planned production levels of 210 units, what was the true value of the Tri star program? | ($584,048,126)| At planned production levels of 300 units, what was the true value of the Tri star program? | ($274,381,683)| At planned production levels of 323 units, what was the true value of the Tri star program? | ($206,205,933)| At what sales volume would the program reach true break even? | About 388|