Rocket Cost and Space Tourism

Imagine a rocket booster consisting of three expendable stages.
Stage 1 - 67% RP-1 & LOX propellant (275 s specific impulse)
Stage 2 - 67% LH2 & LOX propellant (exhaust velocity is 4400 m/s)
Stage 3 - 40% LH2 & LOX propellant (exhaust velocity is 4400 m/s)
Each stage allows 9% for everything besides propellant and payload.
This means the whole rocket has a mass of only 680,828 kg and it can
send 20,000 kg to a 400 km Low Earth Orbit (LEO).
So how much does this cost? I want $500/kg which leads to $10 million
per flight.
Is this scientifically possible? Is it against the laws of physics to
be able to mass produce rockets that cheaply, including the cost of
fuel? Imagine that we make 40 full-scale rockets a year.
Then operations cost $400 million per year.

Stage 1 - 680828kg * 0.09 = 61,275 kg
Stage 2 - 680828kg * 0.24 * 0.09 = 14,706 kg
Stage 3 - 680828kg * 0.24 * 0.24 * 0.09 = 3,530 kg

How much does our rocket cost? Adding up the above, 9% of each stage,
we find the rocket when removed of its payload and fuel, has a mass of
79,511 kg.

Our question is whether it is scientifically possible for a vehicle
with a mass of about 80,000 kg to cost only $10 million. If so, it
costs $125 per kg.

Is that so unreasonable? Why do rockets cost thousands per kg launched
to LEO then?
If our vehicle is made out of some cheap material (not titanium, too
expensive), then we might get it down to $100 per kg. $100/kg * 80,000
kg = $8 million.

Lets see how much fuel we need.

Stage 1 - 680828kg * 0.67 = 456,155 kg RP-1 and LOX
Stage 2 - 109,478kg LH2 and LOX
Stage 3 - 15,687kg LH2 and LOX

We need 581,320 kg of propellant.

So how much does this fuel really cost?
Lets assume it's all hydrogen and oxygen and is burned to produce
energy, and it costs $0.25 per kWhr generated. If so, then 581,320 kg
yields 5.81TJ of energy or 1.61e6 kWhr. At $0.25 per kWhr this costs
only $404,000.

So is it SCIENTIFICALLY possible to launch 20,000 kg for $10 million?
I believe it is. Cost is generally a function of labor, raw materials,
and energy (all three of which must be paid for).

The cost of the above rocket is $404,000 plus $8 million, or $8.4
million or so. Presumably there is also labor and non-fuel energy
expenses, but there is no scientific reason why these MUST exceed $1.6
million.

So my question to you is, why are rockets more than they
scientifically should cost? Is it greed? Or perhaps it's the design,
which costs a lot in labor. A good Ph.D might cost you $200 per hour.
Working 40 hours a week that Ph.D costs $416,000 a year. Maybe to come
up with the design you need 10 "good" Ph.D's and 90 others (e.g.
people with BS or MS degrees) at $50 per hour. That comes out to 4.16
million plus 9.36 million or 13.52 million a year.

I imagine a budget of $33 million could come up with a cheap rocket
after six years of experimentation and study. The cost is then close
to $200 million. After spending $200 million one would then need to
spend $10 million per rocket.

Making it pay for itself. First the investment required is $200
million. Then an additional $10 million is required for a tourist
rocket. That rocket can carry 20,000 kg - potentially 15 tourists each
paying $900,000 could be carried to space for a 3 to 4 day mission.
This yields a profit of 3.5 million.

If we can scale up our operation, we can fly a rocket a week. Thus we
generate $182 million a year in profits.
We can then pay back our $200 million investment in 1 year and 2
months. After that, it's all profit.
This is all scientifically possible. There is also the laws of man
however. There are taxes, insurance costs, land acquisition costs, and
so on.

Extinction: I doubt we could sell more than 520 flights, in total,
e.g. this business would last perhaps one decade. In that time, it
would have flown 7,800 people. They would all need to be millionaire
tourists. I doubt if the world has more than 10,000 millionaires who
want to fly in circles. This means we would generate profits of $1.82
billion over 10 years after six years of spending $200 million.

Let's compute the ROI. You have $200 million at year 0, then beginning
at year 6 you make $182 million per year for ten years, then we become
extinct at year 16 (I assume most people will want to fly to space
only once). So after sixteen years, 200 million becomes 1820 million.
200 R^16 = 1820. This works out to R=1.148 or very close to a 15%
return on investment.

We have couple of problems: it's risky. Maybe $200 million will be
spent and there will be NO profit, just a large experimental rocket.
Maybe we aren't clever enough to be able to mass produce as many
rockets as we would need. But the laws of physics and science to not
preclude an opportunity like this from happening in the future.

I would totally support anyone who tries in any shape or form to step
towards this goal.

I am a Computer Science major from California. The above plan was made
by a lot of trial and error and some computer simulations of rocket
trajectories taking into account air resistance. The low mass ratios
are due to practicality and my desire for a cheap rocket. I have found
(using OpenOffice.org spreadsheets) that higher mass ratios lead to a
greater cost vehicle because it has a net greater mass.

Personally, I think America still is the land of opportunity. When I
graduate in a year and a half I plan to apply for rocket-related jobs
all across California and help out where I can, hopefully my employer
won't go broke and have to lay everyone off, and maybe just maybe
someday someone will succeed in lowering the cost of access to space.