LOCKHEED TRI STAR CASE STUDY Memorandum
LOCKHEED TRI STAR CASE STUDY
Ignacio Serra N
04/23/2015
Introduction The Lockheed L-‐1011 TriStar was the third wide body passenger jet airliner to reach the marketplace, following the Boeing 747 “jumbo jet” and the Douglas DC-‐10. Lockheed began design and testing in 1966 on their entry, the “Tri Star”, which boasted a range of over 6,000 miles with nearly 400 passengers and speeds of close to 600 mph. They had already invested nearly $900 million in development costs. Falling to achieve profitability in the civilian airliner sector, the TriStar was to be Lockheed’s last commercial aircraft.
Analysis I recommend that the investment decision made by Lockheed leaders to embark on the TriStar was unreasonable; this poor decision resulted in a tragic loss of wealth for the shareholders. This case illustrates the significance of Net Present Value analysis in Capital Budgeting. At 10% discount rate in the given scenario and with the production volume of 210 aircrafts, it give us a NPV of (-‐$584 million), obviously this is unacceptable NPV. !"#$%&'()#*)+#,,#-*(.
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Ignacio Serra N
04/23/2015
Introduction The Lockheed L-‐1011 TriStar was the third wide body passenger jet airliner to reach the marketplace, following the Boeing 747 “jumbo jet” and the Douglas DC-‐10. Lockheed began design and testing in 1966 on their entry, the “Tri Star”, which boasted a range of over 6,000 miles with nearly 400 passengers and speeds of close to 600 mph. They had already invested nearly $900 million in development costs. Falling to achieve profitability in the civilian airliner sector, the TriStar was to be Lockheed’s last commercial aircraft.
Analysis I recommend that the investment decision made by Lockheed leaders to embark on the TriStar was unreasonable; this poor decision resulted in a tragic loss of wealth for the shareholders. This case illustrates the significance of Net Present Value analysis in Capital Budgeting. At 10% discount rate in the given scenario and with the production volume of 210 aircrafts, it give us a NPV of (-‐$584 million), obviously this is unacceptable NPV. !"#$%&'()#*)+#,,#-*(.
9':-&');%<&<*=''
C&'E&-F%@=#-*
C&-F%@=#-*!G/7+)E'&)<#&@&<:=.)
A'H'*%'(
?'E-(#=(
I<(J)",-K
/012
/013 /010 /024 /02/ /025 /026 /027 /028 /021 /022
=>4
=>/
=>5
=>6
=>7
=>8
=>1
=>2
=>3
=>0
=>/4 ?#(@-%*=)A<='
BCD
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