Should the board approve the 7E7? Solultion to Case Study Cost of Capital In this case, the extended length of the regression period is a detriment to the calculation of future risk. Your e-mail Input it if you want to receive answer. They will be coming to market with their new A in The 7E7 will carry more passengers per flight in a fuel efficient manner allowing the airline companies to justify purchasing the plane.
Cost of Equity The 7E7 Project is a risky project. If Boeing falls behind regarding innovation, fuel efficiency and all the other attributes of a long haul airliner they will lose their market share. For example, a rate of 3. However, if yield to maturity rates are lower than expected, we can lower the WACC. The 60 month beta regression period began June 16, The 21 month beta period began September 17,
The new 7E7 will have lower operating costs due to increased cargo space and increased fuel economy due to new engine design, would also be versatile and suitable for both short and long flight routes. This will add risk to the project since they have never been used on such a large scale project. There is an awful lot of good work in the construction of this document: See the detailed comments that I have made in the RHS margin.
In order for Boeing to compete in the aviation industry, they must take on some risk and develop this new plane. Staff Analyst 2 — The Boeing Company.
Due to the large beta, investors should expect greater returns than the stock market is providing. Which capital-structure weights did you use?
Sensitivity Analysis The following is the sensitivity analysis of the Boeing project which gives optimistic and pessimistic estimates for the underlying variables of volume and cost of sales. Boeing 7E7 Page 6 There are, however, inherent risks in this project resulting from the design and materials used. Answeds case gives us the rates of the 3-month Treasury Bill and the 30 year Treasury Bond at 0.
The supply chain is very large and spread over the globe. Boeing is expecting to reach this unit goal The financial answere provided in this report show that there is a very good chance that the project will increase the wealth of the shareholders.
Boeing 7E7 case study by Aaron Casey on Prezi
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. Suggest us how to improve StudyLib For complaints, use another form.
This is the estimate used by Brealey and Meyers, and is comprised of total market returns from The equity market risk premium should equal the excess return expected by investors on the market portfolio. No other weighted entities such as preferred shares are considered.
For example, we used a market expectation of 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. This data is highly skewed due to the events of September 11, and the subsequent deterioration of the airline industry.
Add this document to collection s. In this case it was calculated to be 7. The 7E7 is the first plane to use a carbon body construction and employ wingtip extenders. Add to collection s Add to saved. Optimistic Best case scenario includes a cost of capital that is lower than expected.
The Boeing 7E7
The weighted average answets of capital WACC was calculated to be Both ended June 16, Your e-mail Input it if you want to receive answer. It did not quite all come together perfectly at the end.
A beta of 3 instead of 2. The Equity beta for the whole company and for the commercial division is calculated in the appendix. This would earn a IRR of Add this answerw to saved. After carefully considering the risks and benefits of the 7E7project, we recommend that the Board of Directors approve the project. The market competition corroborated with the unfavorable economic conditions prompt a swift and decisive answer from 77.