Case in Point:Complete Case Interview Preparation - 5th edition by Marc Cosentino

Author:Marc Cosentino
Language: eng
Format: mobi
Published: 2010-06-19T12:22:13+00:00

World Spacelines

) Case ii: World Spacelines has developed a rocket-boosted Spaceplane® that can take off and land like a conventional airplane, but can also fly through the atmosphere and orbit the earth. World Spacelines wants to take passengers on a three-hour tour of space. They have built a prototype, which cost them $500 million. Each additional spaceplane will cost $uoo million to manufacture.

• Estimate the size of the domestic market.

• Determine what price they should charge for a ticket.

• How many spaceplanes should they build in the future?

• Should they manufacture spaceplanes for the competition?

So let me make sure I understand. World Spacelines has developed a spaceplane that can take off and land like a conventional plane and it's designed to take tourists on a three-hour tour of space.

- Yes.

You'd like me to estimate the size of the U.S. market, determine what to charge customers, decide how many of these spaceplanes to build, and whether or not they should manufacture them for our competitors.

- That's right.

I'll assume one objective is to build a successful business. Any other objectives I should be aware of?

- Yes. They want to be the first organization to build a space hotel.

Are there any competitors?

- No.

Do we have a patent on our technology?

- Yes.

How long before someone weasels around the patent and starts to compete with us?

- Three years.

How big is the plane? How many passengers does it hold?

- One hundred.

The trip takes three hours. How many trips per day are you planning?

- Two trips a day, 360 days a year.

Well, before I can estimate the market size, I need to know the price we are going to charge. Because, if it's one dollar, then the market is just about the whole country. But if we charge one million dollars, then the market is much, much smaller.

And before I can figure out the price, I need to know what it's going to cost us per passenger. So I'm going to make some assumptions about costs. How long is the life of the plane?

- Twenty years. And yes, you can allocate the costs over twenty years without interest. What do you think the major costs are?

I figure the major costs are the cost of the plane, labor (both on-board and administrative), maintenance, fuel, airport fees, insurance and marketing.

- Good. I'll give you most of the costs; however, I want you to figure out the fuel costs. The plane burns 10 gallons of fuel for every mile and the fuel costs $10 a gallon.

How far is our trip? How high is the sky?

- The Earth's atmosphere is about 300 miles thick, but most of the atmosphere (about 80%) is within 10 miles of the surface of the Earth. There is no exact place where the atmosphere ends; it just gets thinner and thinner, until it merges with outer space. In addition, we use very little fuel when we are orbiting and descending. So we'll estimate our trip goes 500 miles.

So 10 gallons per mile times 500 miles equals 5,000 gallons, times $10 a gallon is $50,000 per trip.

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