1.
The calculation of the true value of the Tri Star program is developed using the Net Present Value concept which depends on of the future net cash flows of a project or company. The Tri-Star Program started in 1967 with the pre-production phase until 1971. After 1971 until 1977 is the production phase of the L-1011 Tri-Star program (HARRINGTON-CRESSMAN, 2015).
The true value of the program is the net present value that includes all the net cash flows in all the periods of the program, project or enterprise. Assuming a plan of 210 aircraft for the production phase, the calculation details are in Table 1 before the payment plan revision and Table 2 after the revision payment plan.
The Net Present Value of the program, calculated at 1967 with a 10% discount rate is:
NV = (-100)/(1-0.10)^0 + (-200)/(1-0.10)^1 + (-200)/(1-0.10)^2 + (-200)/(1-0.10)^3 + (-200)/(1-0.10)^4 + (70)/(1-0.10)^5 +(70)/(1-0.10)^6 +(70)/(1-0.10)^7 + (70)/(1-0.10)^8 + (70)/(1-0.10)^9 + (70)/(1-0.10)^10
NV = -477.95 million dollars
Both scenarios of the program are non-viable with a plan of 210 aircraft and the structure costs of the company. The advanced payment of the aircraft improves the value of the program, but not enough.
2.
Assuming 300 aircraft in the production phase (50 per year) and a unitary production cost of 12.5 million dollars with favorable payment conditions to the company, Table 3 shows the net cash flow per year.
The program is non-viable with a plan of 300 aircrafts and the new structure costs of the company.
3.
Assuming 500 aircraft in the production phase (83 per year) and a unitary production cost of 11 million dollars with favorable payment conditions to the company, Table 4 shows the net cash flow per year.
A production plan of 500 that reduces the unitary cost production of the aircraft gives to the company a better viability to the program than the previous scenarios.
4.
It was not a good idea to the company to pursue the program because the net present value of the project always has a negative net present value. With a negative net present value, the company will get a negative benefit for it. That was the reason the investors previous to 1970 drop the stock in the Stock Exchange.
List of References
HARRINGTON-CRESSMAN, P. J., 2015. REQUIEM FOR A TRIJET MASTERPIECE – THE LOCKHEED L-1011. [Online] Available at: http://www.airlinereporter.com/2015/09/requiem-trijet-masterpiece-lockheed-l-1011-tristar/ [Accessed: 15 May 2016].
