The weighted average cost of capital WACC was calculated to be Boeing would need to earn at Boeing 7E7 Page 3 least However, if yield to maturity rates are lower than expected, we can lower the WACC. The 21 month beta period began September 17, Assuming the development costs are correctly estimated and the market response is properly gauged, the reasons to go forward with the project outweigh those against it.
Cost of Equity The 7E7 Project is a risky project. The hurdle rate, or the internal rate of return that gives the project an NPV of zero is This is the estimate used by Brealey and Meyers, and is comprised of total market returns from Ensuring the development and manufacturing costs are kept down by employing decades of engineering expertise and already proven technologies and solutions, it is recommended that Boeing undertakes the 7E7 project. There are other risks mentioned above that must be considered but on balance the reasons to go forward with the project outweigh those against it.
Boeing 7E7 Project Evaluation Circumstances for an economically attractive project The project would be economically attractive if Boeing could sell enough planes in a given bieing period above a certain price.
The market competition corroborated with the unfavorable economic conditions prompt a swift and decisive answer from Boeing. Add this document to saved.
This data is highly skewed due to the events of September 11, and the subsequent deterioration of the airline industry. This will help command a larger share of the market. Adding this versatility will give the 7E7 owner more options for travel routes.
It did not quite all come together perfectly at the end. Boeing 7E7 Page 6 There are, however, inherent risks in this project stjdy from the design and materials used.
Boeing 7E7 case study by Aaron Casey on Prezi
The success of the expandable wing will also give the plane attractive versatility. Management Summary The analysis identifies both risks and benefits associated sthdy undertaking the 7E7 project. Instead of the Boeing would need to earn at Boeing 7E7 Page 3 least This is therefore the risk free rate that we will use for our calculations.
Giving a calculated WAAC of This will add risk to the project since they have never been used on such a large scale project.
After carefully considering the risks and benefits of the 7E7project, we recommend that the Board of Directors approve the project. This is the estimate used by Brealey and Meyers, and is comprised of total market returns from A reverse of this trend znswers crucial to reach some of the projected sales numbers that Boeing is counting on.
There is an awful lot of good work in the construction of this boeint This would earn a IRR of Sensitivity Analysis The following is the sensitivity analysis of the Boeing project which gives optimistic and pessimistic sfudy for the underlying variables of volume and cost of sales. In this case, the extended length of the regression period is a detriment to the calculation of future risk. Upload document Create flashcards. Cost of Equity The 7E7 Project is a risky project.
The Boeing 7E7
They will be coming to market with their new A in Add to collection s Add to saved. See the detailed comments that I have made in the RHS margin. You can add this document to your saved list Sign in Available only to authorized users.
Since this project has a time horizon on the order of years it would be very reasonable to use the year Treasury Bond as the value for the risk free interest rate. A beta of 3 instead of 2. Risk Free Rate US government debt is considered risk free as there is a miniscule chance, very near zero, that the US government will become insolvent.
There are other risks mentioned above that must be considered but on balance the reasons to go forward with the project outweigh those against it.
For example, we used a market expectation of Due to the length of the Boeing project, at first bpeing it would appear a beta calculated using a longer regression period would estimate future returns best. Boeing is expecting to reach this unit goal The financial calculations provided in this report show that there is a very good chance that the project will increase the wealth of the shareholders. If the market expectations underperform, we can also lower our estimates of Boeing 7E7 Page 5 cost of capital.