Journal of Finance
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Выпуск N4 за 1973 год
Опубликовано на портале: 17-09-2004Uwe 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