SpaceX has been awarded a contract to build a next generation rocket for NASA. NASA will...

Transcribed Image Text:

SpaceX has been awarded a contract to build a next generation rocket for NASA. NASA will pay SpaceX $640,000 per year for 18 years (beginning next year) as progress payments. NASA will also pay SpaceX milestone payments of $6,000,000 at the halfway point (after 9 years), and $15,000,000 after completion, with 2 years delay making sure everything works properly (after 20 years). SpaceX will need to make an initial investment of $7,000,000 and will also have costs of $160,000 per year, for 18 years, to cover labor and materials. SpaceX's annual WACC is 13%. What is the NPV of the contract for SpaceX? Should they accept the contract? SpaceX has been awarded a contract to build a next generation rocket for NASA. NASA will pay SpaceX $640,000 per year for 18 years (beginning next year) as progress payments. NASA will also pay SpaceX milestone payments of $6,000,000 at the halfway point (after 9 years), and $15,000,000 after completion, with 2 years delay making sure everything works properly (after 20 years). SpaceX will need to make an initial investment of $7,000,000 and will also have costs of $160,000 per year, for 18 years, to cover labor and materials. SpaceX's annual WACC is 13%. What is the NPV of the contract for SpaceX? Should they accept the contract?

Answer rating: 100% (QA)

SOLUTION To calculate the NPV of the contract for SpaceX we need to find the present value of all the cash flows associated with the contract includin... View the full answer