Question

Calisto Launch Services is an independent space corporation and has been contracted to develop and launch one of two different satellites. Initial equipment will cost $760,000 for the first satellite and $830,000 for the second. Development will take 5 years at an expected cost of $190,000 per year for the first satellite; $170,000 per year for the second. The same launch can be used for either satellite and will cost $235,000 at the time of the launch 5 years from now. At the conclusion of the launch, the contracting company will pay Calisto $2,600,000 for either satellite. Calisto is also considering whether they should consider launching both satellites. Because Calisto would have to upgrade its facilities to handle two concurrent projects, the initial costs would rise by $180,000 in addition to the first costs of each satellite. Calisto would need to hire additional engineers and workers, raising the yearly costs to a total of $350,000. An additional compartment would be added to the launch vehicle at an additional cost of $55,000. As an incentive to do both, the contracting company will pay for both launches plus a bonus of $1,150,000. Using a present worth analysis (PW) with a MARR of 12.00 percent/year, what should Calisto Launch Services do? (Do all calculations to 5 decimal places and round final answer to 2 decimal places in terms of k (1 k = 1,000). Tolerance is +/- 1.00.) (I) Calculate PW of first satellite $ Entry field with incorrect answer (in thousands) (II) Calculate PW of second satellite $Entry field with incorrect answer (in thousands) (III) Calculate PW of both satellites $Entry field with incorrect answer (in thousands) (IV) Which satellite should be selected based on PW analysis?

Answer 1

On the basis of Present Worth(PW) analysis it is worth noting that only a simultaneous launch results in a positive NPV. Individual Launches both result in negative NPV. Hence, Calisto should go for launching both satellites together.