ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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### Project Evaluation for Calisto Launch Services

**Problem Description:**

Calisto Launch Services is an independent space corporation tasked with developing and launching one of two different satellites. The following presents the cost and financial structures involved in these projects.

#### Costs for Individual Satellites:

1. **Satellite 1:**
   - **Initial Equipment Cost:** $750,000
   - **Development Duration:** 5 years
   - **Development Cost per Year:** $150,000
   - **Launch Vehicle Cost (in 5 Years):** $275,000

2. **Satellite 2:**
   - **Initial Equipment Cost:** $850,000
   - **Development Duration:** 5 years
   - **Development Cost per Year:** $120,000
   - **Launch Vehicle Cost (in 5 Years):** $275,000

#### Revenue:

- **Payment by Contracting Company (per satellite):** $2,500,000 (at the conclusion of the launch).

#### Combined Launch Option:

- **Additional Initial Costs:** $150,000 to upgrade facilities.
- **Additional Development Cost per Year:** $400,000 for hiring engineers and workers.
- **Additional Launch Vehicle Cost:** $75,000 for an extra compartment.
- **Contracting Company Incentive for Both Launches:** Additional payment of $1,000,000.

#### Present Worth Analysis:

A MARR (Minimum Attractive Rate of Return) of 10 percent per year is used to evaluate the project financially. Calisto Launch Services must determine the economic viability of their options.

The financial decision involves calculating the present value of each option, factoring in both costs and revenues, and comparing the net present value (NPV) to guide the decision-making process.

---

**Graphical or Diagrammatic Explanation:**

While there are no graphs or diagrams provided in this text, a financial present worth analysis might typically include:

- **Cash Flow Diagrams:** Illustrating inflows (revenues) and outflows (costs) over the project's timeline.
- **NPV Calculations:** Detailing yearly costs, revenues, and the discounting process at the given MARR.
- **Comparative Tables:** Summarizing the present worth of each option for easy comparison.

In order to perform detailed calculations, each year's costs and revenues would be discounted to present value terms using the formula:

\[ PV = \frac{FV}{{(1 + r)^n}} \
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Transcribed Image Text:### Project Evaluation for Calisto Launch Services **Problem Description:** Calisto Launch Services is an independent space corporation tasked with developing and launching one of two different satellites. The following presents the cost and financial structures involved in these projects. #### Costs for Individual Satellites: 1. **Satellite 1:** - **Initial Equipment Cost:** $750,000 - **Development Duration:** 5 years - **Development Cost per Year:** $150,000 - **Launch Vehicle Cost (in 5 Years):** $275,000 2. **Satellite 2:** - **Initial Equipment Cost:** $850,000 - **Development Duration:** 5 years - **Development Cost per Year:** $120,000 - **Launch Vehicle Cost (in 5 Years):** $275,000 #### Revenue: - **Payment by Contracting Company (per satellite):** $2,500,000 (at the conclusion of the launch). #### Combined Launch Option: - **Additional Initial Costs:** $150,000 to upgrade facilities. - **Additional Development Cost per Year:** $400,000 for hiring engineers and workers. - **Additional Launch Vehicle Cost:** $75,000 for an extra compartment. - **Contracting Company Incentive for Both Launches:** Additional payment of $1,000,000. #### Present Worth Analysis: A MARR (Minimum Attractive Rate of Return) of 10 percent per year is used to evaluate the project financially. Calisto Launch Services must determine the economic viability of their options. The financial decision involves calculating the present value of each option, factoring in both costs and revenues, and comparing the net present value (NPV) to guide the decision-making process. --- **Graphical or Diagrammatic Explanation:** While there are no graphs or diagrams provided in this text, a financial present worth analysis might typically include: - **Cash Flow Diagrams:** Illustrating inflows (revenues) and outflows (costs) over the project's timeline. - **NPV Calculations:** Detailing yearly costs, revenues, and the discounting process at the given MARR. - **Comparative Tables:** Summarizing the present worth of each option for easy comparison. In order to perform detailed calculations, each year's costs and revenues would be discounted to present value terms using the formula: \[ PV = \frac{FV}{{(1 + r)^n}} \
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