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 thousand for the first satellite and $700 thousand for the second. Development will take 5 years at an expected cost of $120 thousand per year for the first satellite, $140 thousand per year for the second. The same launch vehicle can be used for either satellite and will cost $235 thousand at the time of the launch 5 years from now. At the conclusion of the launch, the contracting company will pay Calisto $2.6 millon for either satellite. Calisto is also considering launching both satellites. Because Calisto would have to upgrade its facilities to handle two concurrent projects, the initial costs would rise by $150 thousand 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 $300 thousand. An extra compartment would be added to the launch vehicle at an additional cost of $75 thousand. As an incentive to do both, the contracting company will pay for both launches plus a bonus of $1.05 million. Using an internal rate of return analysis with a MARR of 10%/year, what should Calisto Launch Services do? Click here to access the TVM Factor Table Calculator Which of the following lists indicate the proper alternatives for this problem:

a]First satellite only, second satellite only

b]First satellite only, second satellite only, both satellites

c]First satellite only, second satellite only, both satellites, neither satellite

d]First satellite only or second satellite only or neither satellite

Part 2: Rank the alternatives in terms of initial cost for the project

Which of the following is the correct ranking of the alternatives for this project?

a]Second satellite only, First satellite only, Both satellites

b]First satellite only, Second satellite only, Both satellites

c]Both satellites, Second satellite only, First satellite only

d]Second satellite only, Both satellites, First satellite only

Part 3: Develop the Excel spreadsheet

The following table has been developed to solve for the incremental internal rate of return for the comparison of Second only to First only:

EOY First only Second only INCR, CF

0 ? $ -700 k $ -100 k

1-4 $ -120 k ? $20 k

5 ? $2.225 million ?

Fill in the missing values in the table. (Round all calculations to the nearest five dollars. The tolerance is +/- 5.) What is the rate of return? IRR = % (Do calculations to five decimal places and round your final answer to two decimal places. The tolerance is +/- 0.02. If entering a negative number use the (-) sign.)Click if you would like to Show Work for this question:

Part 4: Determine which alternative should be selected upon completion of the first round of analysis

Which alternative should be selected after the first round of analysis?

a]Select Second only since the IRR was less than the MARR value.

b]Select First only since the IRR was less than the MARR value.

c]Select Second only since the IRR was greater than the MARR value.

d]None of the above.

Part 5: Compute the incremental internal rate of return for the second round of analysis

Using the following table, compute the internal rate of return for the incremental cash flow for the second round of analysis.

EOY Both satellites second only INCR, CF

0 $ -1.65 million $ -800 k $ -0.85 million

1-4 $ -300 k $ -120 k $ -180 k

5 $5.64 million $2.245 million $3.395 million

IRR = % (Do all calculations to 5 decimal places and round final answer to 2 decimal places. The tolerance is +/- 0.02.)Click if you would like to Show Work for this question:

Open Show Work

Part 6: Determine which alternative should be selected based on the incremental rate of return in the final step of the analysis

Which alternative (the challenger Both satellites or the defender Second only) should be selected using the MARR value of 10%/year?

a] The challenger Both satellites should be selected since the IRR was less than the MARR.

b]The defender Second only should be selected since the IRR was less than the MARR.

c]The challenger Both satellites should be selected since the IRR was greater than the MARR.

d] None of the above.