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Fixed price or cost-plus for an armoured vehicle programme in Poland
The prompt
A European defence company is negotiating a programme to build armoured vehicles for Poland and reports in EUR. It estimates the programme will cost EUR 400 million. The ministry offers two contracts: a fixed price of EUR 440 million, or cost-plus with a fixed fee of 7 percent of the estimated cost. The company thinks there is a real chance that costs run 15 percent over the estimate, because some suppliers are new. What profit does each contract give if costs are on estimate and if they overrun, and what does the ministry pay under cost-plus with the overrun? (Figures are illustrative.)
Your interviewer will share data as you ask for it. Ask clarifying questions, state a hypothesis, then lay out your structure out loud before you calculate.
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