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Lockheed Solution

This document summarizes the cash flows of a project from 1967-1977, including scenarios where the project continues or is abandoned in 1971. If continued: 1) Upfront costs are paid from 1967-1971 while deposits are received in later years; 2) Revenues begin in 1972 and production costs are incurred annually; 3) The NPV is negative if continued from inception but positive if continued from 1970. If abandoned in 1971: 1) Half the upfront costs are refunded and deposits are returned, resulting in a cash outflow that year.

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15 views2 pages

Lockheed Solution

This document summarizes the cash flows of a project from 1967-1977, including scenarios where the project continues or is abandoned in 1971. If continued: 1) Upfront costs are paid from 1967-1971 while deposits are received in later years; 2) Revenues begin in 1972 and production costs are incurred annually; 3) The NPV is negative if continued from inception but positive if continued from 1970. If abandoned in 1971: 1) Half the upfront costs are refunded and deposits are returned, resulting in a cash outflow that year.

Uploaded by

p23ayushs
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Cash flows at inception

Upfront Balance of Production Total Cash


Year costs Deposits Revenues Cost flow
1967 -100 -100
1968 -200 -200
1969 -200 -200
1970 -200 140 -60
1971 -200 140 -490 -550
1972 140 420 -490 70
1973 140 420 -490 70
1974 140 420 -490 70
1975 140 420 -490 70
1976 420 -490 -70
1977 420 420

NPV as of end 1966 at 10% -530.95


Cash flows if Lockheed continues the project Cash flow if it Incremental
abandons cash flow
Upfront Balance of Production Total Cash Total Cash Total Cash
Year costs Deposits Revenues Cost flow flow flow
1971 -200 140 -490 -550 -240 -310
1972 140 420 -490 70 70
1973 140 420 -490 70 70
1974 140 420 -490 70 70
1975 140 420 -490 70 70
1976 420 -490 -70 -70
1977 420 420 420

NPV as of end 1970 at 10% 95.91

Cash flows if Lockheed abandons the project in early 1971


Upfront Refund of Total Cash
costs advance flow
say 50%
1971 -100 -140 -240

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