Exploring the Unknown - NASA's History Office

514
Probability of Success
1.0
0.8
0.6
0.4
0.2
0
Figure 21. Space manufacturing implementation risk
SPACE AS AN INVESTMENT IN ECONOMIC GROWTH
Ground &
Rocket R&D
Pilot
Plant
Sortie
R&D
77 78 79 80 81 82 83 84 85 86 87 88 89 90
Year
Production
[16] 7.0 RISK ADJUSTED FINANCIAL RETURN
The combined probability of successful implementation of the space manufacture of
silicon ribbon is the product of the technical, legal, and market success probabilities given
in Figure 21. The cash flows were adjusted for risk by considering each year as a fork of a
decision tree. The value associated with continuing the project for a year is the cash flow
for that year and the value associated with failure is zero. Risk adjusted cash flows are the
product of the year’s cash flow and the series probability of continuing the project
through that year. Using these cash flows, risk adjusted returns on investment were calculated
for the years of the commercial design, plant fabrication, and production,
1982–1990. The resulting risk adjusted rate of return on investment versus time is shown
in Figure 22. While the expected rate of return after the five years of production in 1990
is 29.5%, the risk adjusted rate of return when the private sector would first commit to
development in 1982 is 14%. This is greater than the rate of return for continuing ground
based operations and could justify initiation of commercial development at that time. It
should be realized that this favorable risk adjusted return on investment assumed government
sponsored research and development through the pilot plant demonstration in
1984. If industry assumed these risks and cost, the risk adjusted rate of return today would
be 4%, and because the 4% is less than the 10% typical return on investment for earth
based operations, industry would probably not invest. This means that the government
will most likely have to [original placement of Figure 22] sponsor the process research
and development for space manufacturing to become a reality.
For the government to participate in any activity it is necessary that it be in the public
interest. In general, advancing technology is considered to fall in this category because
of the impetus it provides for continued economic growth. An example of government
sponsorship of commercially applicable technology is NASA’s work in satellite communication.
Although Telstar in 1962 was advertised as a $50M investment by a commercial
firm, AT&T, the government had already spent approximately ten times that amount to
develop and demonstrate the potential of space communications. This technology was
later applied by the Congressionally chartered Communications Satellite Corporation
(COMSAT) in implementing improved international communications.
Legal
Market
Technical
Overall