What is the IRR of the F-22 Raptor project? The Lockheed Martin/Boeing

What is the IRR of the F-22 Raptor project? The Lockheed Martin/Boeing F-22 Raptor is a stealth fighter aircraft. It was designed primarily as an air superiority fighter, but it is also capable of ground attack and other roles.

Lockheed Martin Aeronautics is the prime contractor and is responsible for the majority of the airframe, weapon systems and final assembly. Lockheed Martin invested over $10B on design and manufacturing for the aircraft. Assume that those investments were paid for on Jan 1, 2003. Each aircraft will be sold for $350M and the variable cost of building each airplane is $300M. Assume that 70 aircraft will be sold each year for 5 years. Thus annual revenues are $24.5B and annual costs are $21B. Assume that revenues and costs occur at year-end with the first year of operating cash flows occurring on Dec 31, 2003. Lockheed-Martin’s cost of capital is 10% and the NPV of the project is $3.268B. What is the IRR of the project?(Assume that there are no taxes.)

Date Investments Revenues Costs
Jan. 1, 2003 -$10B
Dec. 31, 2003 $24.5B $21B
Dec. 31, 2004 $24.5B $21B
Dec. 31, 2005 $24.5B $21B
Dec. 31, 2006 $24.5B $21B
Dec. 31, 2007 $24.5B $21B

A) 7.24%
B) 8.50%
C) 9.76%
D) 10.50%
E) 22.11%

ANSWER

E