Journal of Finance
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Выпуски:
Опубликовано на портале: 17-09-2004
Uwe E. Reinhardt
Journal of Finance.
1973.
Vol. 28.
No. 4.
P. 821-838.
In this paper the Tri Star project is reexamined in terms of a capital-budgeting
framework. The objective of the analysis is two-fold. First, it serves to illustrate
how standard economic and financial theory can be brought to bear on the solution
to real-world business problems. Second, it demonstrates the contribution financial
theory can make towards ratioual decision-making in the public sector. From the Congressional
hearings one gathers that the loan-guarantee legislation was passed in the belief
that the Tri Star program was commercially viable, an impression Lockheed had tried
hard to convey with its own break even projections. Our analysis suggests, however,
that the inclusion of the opportunity cost of funds among the total costs of Tri
Star
tends to raise the actual break-even sales for the program to a level almost twice
as high as the estimates submitted by Lockheed to Congress. It is clear then, that
Congress made its decision in this case on the basis of highly misleading information.
Section II below sets forth the theoretical model unerlying our analysis.
The section also indicates the various sources from which our revenue and cost estimate
have been pieced together. The empirical results from the analysis are presented
in Section III . Some necessary caveats are offered by way of summary
in Section IV


