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 $800,000 for the first
satellite and $860,000 for the second. Development will take 5
years at an expected cost of $120,000 per year for the first
satellite; $150,000 per year for the second. The same launch can be
used for either satellite and will cost $315,000 at the time of the
launch 5 years from now. At the conclusion of the launch, the
contracting company will pay Calisto $2,350,000 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 $100,000 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 $125,000. As an incentive to do both, the
contracting company will pay for both launches plus a bonus of
$800,000. Using a present worth analysis (PW) with a MARR
of 8.00 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
$
(in thousands)
(II) Calculate PW of second satellite
$
(in thousands)
(III) Calculate PW of both satellites
$
(in thousands)
(IV) Which satellite should be selected based on
PW analysis?
Not Launch at allFirstBothSecond
i)
NPW of first satellite = -800000 - 120000 * (P/A,8%,5) - 315000*(P/F,8%,5) + 2350000*(P/F,8%,5)
= -800000 - 120000 *3.992710 - 315000*0.680583 + 2350000*0.680583
= 105861.20 ~ 105.86 thousands
ii)
NPW of second satellite = -860000 - 150000 * (P/A,8%,5) - 315000*(P/F,8%,5) + 2350000*(P/F,8%,5)
= -860000 - 150000 *3.992710 - 315000*0.680583 + 2350000*0.680583
= -73920.10 ~ -73.92 thousands
iii)
NPW of both satellite = -(860000+800000+100000) - 350000 * (P/A,8%,5) - (315000+125000)*(P/F,8%,5) + (2*2350000+800000)*(P/F,8%,5)
= -(860000+800000+100000) - 350000 *3.992710 - (315000+125000)*0.680583 + (2*2350000+800000)*0.680583
= 286301.48 ~ 286.30 thousands
iv)
As NPW of launching both satellite is more, both of them should be launched
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