Premium Essay

Lockheed Memo

In: Business and Management

Submitted By richardtreynolds
Words 348
Pages 2
Rich Reynolds Financial Decision Making 8/17/10

To: Lockheed Investment Committee
From: Lockheed CFO
Date: August 18, 1965
Subject: Tri-Star Project

The purpose of this memo is to explain why my recommendation is to not approve the Tri-Star project, which would span over the period of 1967 through 1976. This project relating specifically to the L-1011 Aircraft would cause a considerable amount of stress on the company’s financial performance.
Below you will find the projected cash-flows for this project. These cash flows are based on current assumptions about the project.

The cumulative Net Cash-Flow at the end of 1976 is a -$480 million. This amount is based on actual cash and the time value of money has not been considered. It isn’t until 1972 that the project starts to produce a positive Net Cash Flow, after which, a Net of $1.1 million has already been spent.
Aside from the negative Net Cash Flow here are some additional reasons why this project is not in the best interest of the company. 1. The large amount of upfront investment in these aircrafts will leave the company vulnerable in the event the project doesn’t perform well. The company will feel more obligated to continue on with the project because of the large investment, even though terminating it mid-stream may be a better choice. 2. Almost 5 years will pass between the time of the initial investment and the first aircraft will be completed. This long period of time leaves the company exposed to changing market conditions and changes in the overall economy. 3. The break-even point for number of aircraft at 195-205 does not appear to be within reach based on current information. The company currently does not have enough contracts to secure the sale of this many aircraft and would need to rely on “future” orders to hit this target.…...

Similar Documents

Free Essay

Comparison Between Lockheed and Boeing

...Experiential Exercise: For this exercise, I chose to compare the websites of Boeing and Lockheed Martin. Two prominent companies in the aerospace and aviation industry, which is, and will most likely always be, the primary industry I'm employed in. Both companies' websites successfully convey information in a simplified and descriptive manner. With Lockheed Martin, there are navigational links for different levels of employment and experience levels, such as ex-military personnel transitioning into the civilian careers, new college graduates, interns, and experienced professionals. This simplifies the job search into a 'one-click' method in which interested applicants can view the opportunities that are available to their respective experience levels, as well as any further instructions for applying. Boeing, while also having links to different employment levels, seems more focused on communicating information about the company's ethics, history, and products. This field is based on staying on top of new technology and producing goods of exceptional quality, which means there is a . However, at some levels of both companies, there is a cost-leadership strategy in producing goods for the lowest cost and having employees more efficient than the other. Therefore, it appears that both companies are using a combination strategy, and doing so successfully. There seems to be an encouraged strong desire for entry level applicants with both companies, however,......

Words: 522 - Pages: 3

Premium Essay

Lockheed Tristar Case

... Lockheed Tristar (1) Should Lockheed have pursued the Tri Star project in 1967? What are the main concerns with their analysis of the project? There are multiple different factors to look at when deciding if Lockheed should have pursued the Tri Star project in 1967. There are 6 techniques that are generally applied to assist in this decision: Internal Rate of Return (IRR), Net Present Value (NPV), Payback Method, Discounted Payback Method, Accounting Rate of Return, and Profitability Index. The most frequently used alternative capital budget methods, IRR, NPV and Payback Method, were used to evaluate this project. The Payback Method is not a useful method in its own right, but may have been unwisely used by Lockheed management in deciding on the Tri Star project, and so is discussed here. Based upon Lockheed’s numbers at 210 units (see Table A attached), the resulting NPV of the net generated cash flows is -$584 million and the corresponding IRR is -9.09%. Considering the 10% discount rate is optimistic, the actual results could be worse. The Payback Period calculation shows the project does not achieve payback in the project’s lifetime even on a pure accounting basis. There are several flaws in Lockheed’s initial analysis of the project, besides failing to properly discount cash flows to present: too optimistic projections of sales potential (estimating capture of 35-40% of the market); highly generous discount rate at 10% (considering the risk); highly optimistic......

Words: 497 - Pages: 2

Free Essay

Memo

...Luis Cubilla ENG/221 Technical Writing Fundamentals Zachery Koppelmann January 28 2013 The organization of the memo from Hugh to Abram is partially organized. Hugh does not stray from his subject much and appears to stay on point with what he wants to address. The letter has an average format with a standard intro body and conclusion along with a signature which should be included in all e-mails. The clarity however leaves little to be desired for but at least Hugh admits that he does not understand his own employee or his friend. Hugh talks about how he was advised not to use certain enterprise software’s with by his friend and how he could not understand much of how the situation should be handled or how he should move forward with his business plans. The writing style is very unprofessional; it almost seems more like Hugh is writing to a friend rather than a co-worker or colleague. There are no real formalities Abram is only addressed by name once and the overall feel looks like something a brother would write to his family member. The memo seemed to be a little disrespectful in some ways. First Hugh is talking business matters with a friend rather than Abram, secondly it appears Hough’s friend is providing the basic of warnings that any programmer should look for but Hugh appears to be leaning towards his friend’s advice rather than Abram who as Hough states “respects his professional approach”. To add further insult to injury Abram has been asked to not...

Words: 456 - Pages: 2

Premium Essay

Memo

...SUBJECT: Important Risk Analysis: Assessment of Audit Risk The objective of this memo is to introduce the financial position of Hormel Foods Corp. and provide the general assessment of the company’s audit risk. The overall assessment of risk of material misstatement is moderate. This memo presents the potential high-risk areas as followings. Revenue Recognition GM’s major sources of revenue is manufacturing and marketing branded consumer foods sold through retail stores. It also supply branded and unbranded food products to the foodservice and commercial baking industries. The competition and seasonality is critical factors in estimating the revenue of the company. Additionally, estimate of coupon redemption, product returning and uncollectible sales on credit sales need to be measured accurately. The risk of material misstatement is high in this account. The considerable amount of estimates required to measure accounts such as sales revenue, and account receivable, which lead to a high risk assessment. Moreover, the need to use estimates varying on the operating location, for example, constitutes revenue recognition as a high-risk audit area. GM’s key customers are grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, commercial and noncommercial foodservice distributors and operators, restaurants, and convenience stores. Estimate of return of product and customer credit is important for evaluating the sales revenue...

Words: 939 - Pages: 4

Premium Essay

Memo

...changes towards e-mail privacy. The Policy Violations guideline will go as following: • First Offense- Verbal warning in a direct meeting with a direct supervisor, which will also be entered in writing in the employee’s human resources file. • Second Offense- Reassignment or suspension without pay, for a period to be determined by the employee’s supervisor (who will know best the most appropriate length of time). • Third Offense- Immediate termination without severance pay. These new policy violation changes will be enforce affected immediately. This list is just the simple outline of the new changes for you to explain to your employees. There will be a more detailed company-issued policy memo covering all the issues sent to you in the upcoming weeks. Once you’ve received the memo, it must be posted up at each bureau in an area visible to employees to see. That is all for now, you all have a nice day!...

Words: 283 - Pages: 2

Free Essay

Memo

...The purpose of this memo is to explain the role of technical writing in professional sports, specifically the Colorado Avalanche Management and Team Services department. The information was gathered from an interview with Francois Giguere the former General Manager and Executive Vice President. Background Mr. Giguere previously worked as the Assistant General Manager and Vice President of Hockey Operations for the Colorado Avalanche and he also worked in the Quebec Nordiques organization before the team moved to Colorado. He was promoted May 2006. He has won two Stanley Cups in his career with Colorado. Methods of Communication Mr. Giguere explained to me that he sends a lot of emails to people within the organization. The emails he sends are to department heads such as Scouting, Communications, Marketing, Player Development and the Team Services department. He also uses memos to communicate with his colleagues. He also sends text messages if he is in a hurry and needs to be more direct with a certain people. Management Hierarchy Forms of Writing Within The Organization Within the Colorado Avalanche organization there are several forms of writing: Memos. Keep everyone up to speed on daily activities. There are different forms of memos used to do this. • Manager Memos. A memo is sent out by the General Manager after every trade, free agent signing or contract extension. This is to keep people informed about contract negotiations. A memo includes player......

Words: 506 - Pages: 3

Free Essay

Lockheed

...Memorandum for Lockheed’s L1011 Tristar Project        Recommendation In 1967, Lockheed Corp., the American aerospace company that monopolized the military market for aircrafts, set out to compete in the commercial sector by replacing the Boeing 747 and the McDonnell Douglas DC-10. Lockheed invested tremendous resources into the Tristar thereby jeopardizing the entire corporation’s well-being on this singular project. Tristar distinguished itself from other aircrafts of its kind thanks to the highly-efficient, formidable  Rolls-Royce RB211 engine that the L1011 would need to be constructed. In fact, this very engine, due to Rolls-Royce’s technical difficulties, created diminished sales because of its two year delay in production. My recommendation is that, Lockheed approach their Tristar project more peripherally while still remaining heavily anchored in military production and sales in order to offset cost and diminish the 35 target Tristar airplanes needed to break even. Rationale The reason for Lockheed having this approach is because by doing this Lockheed would be able  to decrease the number of planes it would have to sell in order for it to have a positive NPV.  Lockheed was put into this position because they started putting out their projections and asking for a loan before they had even secured a deal for their engine from Rolls Royce.  Rolls Royce was in such disarray, that they were placed into receivership, and had to be resold to Rolls Royce Ltd. in......

Words: 428 - Pages: 2

Premium Essay

Memo

...|Majority used to give |Expository |Most emails are used as descriptive. They | | |brief description of | |are used to inform the company of new | | |what someone wants | |employees, promotions, introductions, | | |someone else to do. | |meeting requests that have descriptive | | | | |agendas. | |Memos |Most memos I have seen |Technical |Memos in my work place are very rare. The | | |used to inform the | |memos I have seen inform the readers of | | |reader of change being | |what is being done to systems, what the | | |made to systems | |back out plan and who to inform if issues | | | | |arise | |Letters |Letters are used as |Technical |The majority of letters I have seen in the | | |personal......

Words: 690 - Pages: 3

Premium Essay

Memo

...Memo To: Recipient’s Name, Recipient’s Title Department of Defense Army National Guard From: Your Name, Your TitleSGT Jameka Samuel (Automated Logistic Specialist) CC: National Guard Bureau Name and title of individuals you want to copy in on your correspondence; if there are no courtesy copies, leave this line off Date: The date you are sending the memo19 June 2014 Subject: A clear subject line reflecting the focus of your document In need of a sponsor for writing course As we all know in the military being leader depends on your ability to think critically and creatively and to communicate your intention and decision to others. The ability to communicate clearly to get your intent and ideas across so that others understand your message and act on it is one of the primary qualities of leadership. Poor writing and communication in the military is mostly attributed to lack of proper training, lack of confidence and lack of leadership. Taking a soldier out onto the battlefield with a poor communicator could lead to potential deaths of inanest soldiers. With that being said this this is an opportunity to help a striving soldier to become a better leader in the military world by requesting to take a Business Writing Course at Kaplan University in Jacksonville Florida . The cost of the course is $1300.00 which includes all books and necessary course materials. The course will take place over a 6 week time period beginning......

Words: 777 - Pages: 4

Free Essay

Memo

...MEMO #1 Para: Gerente General De: Gerente de producción Asunto: Recomendación sobre política de cumplimiento de estándares razonables para trabajadores de contratistas extranjeros. Fecha: Jueves, 21 de mayo del 2015. El motivo de la presente es para dar mi recomendación sobre una de las políticas acerca del cumplimiento de estándares para los trabajadores de nuestros contratistas extranjeros. Pienso que es importante que como organización nos involucremos con los trabajadores de nuestros contratistas mediante una vigilancia de cumplimientos de estándares o normas. A esta política, agregaría la prohibición del trabajo infantil. Con esta política, vamos a asegurar que estos trabajadores tengan el derecho a trabajar en buenas condiciones por su seguridad, paga justa (no la que actualmente perciben, que es ridículamente baja), y procurar su salud. Generalmente en países asiáticos el trabajo infantil es normal, parte de su cultura, pero no de la nuestra. Existen razones por las cuales el trabajo infantil no es correcto, entre ellas el derecho que tienen a estudiar, jugar, etc. Con el cumplimiento de estándares razonables evitaremos futuros conflictos puesto que los descuidos en seguridad a este personal pueden desencadenar en problemas sociales (activistas laborales) y económicos así como ha ocurrido en los últimos años donde empresas estadounidenses han sido partícipes de esta situación. Como organización nos debe preocupar esto, debemos asegurar que aquellas......

Words: 283 - Pages: 2

Premium Essay

Lockheed

...Investment Analysis and Lockheed Tristar Rainbow Products Part A Cash Flow -35000 5000 Payback period IRR NPV Decision 5000 5000 5000 5000 5000 11.49% (Rs.945.68) NO WACC 12% WACC 12% -35000 4500 Payback period IRR NPV Decision Payback period IRR NPV Decision 5000 7 years Part B Cash Flow Initial Yr 1 to infinity Part C Cash Flow -35000 5000 7.78 years 12.86 % 2500 Yes 4000 4160 4326.4 4499.456 4679.434 4866.612 5061.276 5263.727 7.65 years 15.43 % 15000 Yes 5000 5000 5000 5000 5000 5474.276 5693.247 5920.977 6157.816 till infinity 5000 5000 Investment Analysis and Lockheed Tristar Add a new window Update existing equipment Build a new stand Rent a larger stand Inv. -75000 -50000 -125000 -1000 CF yr 1 44000 23000 70000 12000 CF yr 2 44000 23000 70000 13000 a) IRR rule is misleading due to difference in size of investment. b) Using NPV rule, we recommend "Build a new stand". c) The difference in ranking is explained by the size of investment. CF yr 3 44000 23000 70000 14000 IRR 34.6% 18.0% 31.2% 1207.6% NPV@15% $25,462 $2,514 $34,826 $28,470 Investment Analysis and Lockheed Tristar Cash flows w/o subsidy A) IRR 25% Cost to city PV of Cost to city @20% B) 2-year Payback Cost to city PV of Cost to city @20% C) NPV 75000 @20% Cost to city PV of Cost to city @20% D) ARR 40% Cost to...

Words: 843 - Pages: 4

Premium Essay

Lockheed

...Lockheed Tri Star and Capital Budgeting Andrea Cunha D’ Arruda Financial Decision Making University of California San Diego – Extension Prof. George A. Haloulakos, CFA Executive Summary The commercial jet aircraft business is cyclical, and in need of huge amount of cash to invest and reinvest on its technology. During the 50’s Boeing, Airbus, and Lockheed were in a great competition for market share of the commercial and military aircraft market. This case illustrates the importance of NPV analysis in capital budgeting and the need of identification of competitive advantage with synergy with successful jet aircraft programs with new programs that can generate very large cash flows. The Lockheed TriStar Jet is a medium-to-long range wide-body trijet airliner and was the third to enter commercial operations, after Boeing 747 and DC-10. The program faced various issues during its operation, as the utilization of only one jet engine supplier (Rolls Royce), low estimated required rate of return 10%, and a misjudge of the break-even point of 210 aircrafts, that it is going to be shown on this analyzes that even with 300 aircrafts sold the project do not reach the break-even point. It is recommended by this study that the company need to embrace a business strategy of two end user, instead of only one, to the L1011 program. Concentrating only on the commercial market is not viable, but having the military market as a background of funds and positive cash flow can......

Words: 1396 - Pages: 6

Free Essay

Needs Assessment Lockheed Martin

... Marisa Michaels BIQ Needs Assessment Intro I write to you today to inform you of the most crucial issues that Lockheed Martin will be facing this upcoming year. I will inform you with the relevance and significance of these issues. I will also be identifying the key stakeholders that will be affected by these issues. These issues are intended to inform you ahead of time, so the necessary adjustments can be performed accordingly. Issues: Past Ending Production of specific Fighter Jets Lockheed has been producing numerous amounts of different fighter jets for the United States. A MarketLine SWOT Analysis stated that "The sequestration of appropriations in 2013 imposed by the Budget Control Act of 2011 (Budget Act) began in March 2013. The budget calls for the termination of a few programs which include C-17 Airlifter, F-22 stealth fighter, Future Combat Systems, Multiple Kill Vehicle, Kinetic Energy Interceptor, Airborne Laser, Combat search and rescue helicopter, and Presidential helicopter"(SWOT,2014). The termination of those programs have directly affected Lockheed Martin in terms of production. Issues: Future Lower quality of new employees Lockheed Martin is in the global defense, aerospace, and information technology industries, and after conducting extensive research, it is clear that those three industries could be changing in the future. "The Defense......

Words: 903 - Pages: 4

Premium Essay

Lockheed Case

...should issue 1000 shares at $ 110 per share (1000 * 110). If VAI utilizes the capital raised for this project, the total values of the equity will raise to $ 1210000. This new equity consists of 1000000 market value of asset and 210000 from the cash flow. So, the value of each share will become = 1210000/11000 = $110. The previous share value was $ 100 per share and the new share is $ 110 per share. So, the existing gets an additional $ 10 from the share price. 5) Capital Budgeting Decision Making 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 loss of $530.95 million and an accounting loss of $480 million. In addition to miscalculating the break-even level of production, Lockheed management overestimated the growth rate of air travel industry. Because of this poor decision, Lockheed shares dropped from $70 per share to $3 a share....

Words: 714 - Pages: 3

Premium Essay

Lockheed

...Memo Recommendation I recommend that the investment decision made by Lockheed to embark on the Tri Star program was unreasonable. According to my analysis, the company could have terminated this project and invested its capital in a more profitable investment. Eventually, this poor decision resulted in dramatic loss of wealth for the Lockheed shareholders totaling a loss of $766 million in stock value. Rationale for Decision The Lockheed case illustrates the significance of NPV analysis in Capital Budgeting. Using discount rate of 10% in the given the scenario and with the project volume of 210 aircrafts, I found the NPV to be -$584 million. This was definitely an unacceptable NPV. The revised break-even analysis by Lockheed revealed that the project reached economic break-even with the production of 275 aircrafts at $12.5 million per unit. But as per my analysis, the break-even at this level of the production was not attained. Despite industry analysts predicting 300 units as Lockheed’s break-even sales point, the net present value remained insufficient to cover costs at negative $274 million. Source | Estimated Production Aircrafts (in units) | Estimated cost per Aircraft (in $ million) | NPV at r=10% (in $ million) | Lockheed | 210 | 14.00 | (584) | Lockheed | 275 | 12.50 | (312) | Industry Analysts | 300 | ......

Words: 715 - Pages: 3