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Boeing is making a new autonomous aircraft for the Air Force.  Development costs are $80 million in 2017, and $200 million in each of the years 2018 through 2031.  In 2032, a ten year production run commences, with 50 aircraft produced per year at $10 million apiece.  In the year after production completes, operation and maintenance commences. Operation and maintenance lasts for 40 years, at $5 million per year per aircraft.

a) Gen. Snow knows nothing about cash flow discounting, and so she treats $1 tomorrow the same as $1 today.  What does she think the total life cycle cost is?  What percent is development? production? O & M?

b) You have taken engineering economics, and you know the Air Force real discount rate is 7%. What is the present value of the life cycle costs? What percent is development? production? O & M?

Financial Management, Finance

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