This will lead to challenges managing this network of contractors. As you will find, the financial calculations provided in this report show that the project will increase the wealth of the shareholders, also identifying the associated risks and how those could be minimized. This will add risk to the project since they have never been used on such a large scale project. You can add this document to your study collection s Sign in Available only to authorized users. Giving a calculated WAAC of After carefully considering the risks and benefits of the 7E7project, we recommend that the Board of Directors approve the project.
This plane will be a formidable competitor to the 7E7. You can add this document to your saved list Sign in Available only to authorized users. A decrease in business travel has occurred due to cost and the advance of conferencing technologies. This would earn a IRR of They will be coming to market with their new A in Also calculated WACC for the commercial division only, using the equity beta found in appendix. The 7E7 project would need to provide returns of
The Boeing 7E7
Due to the large beta, investors should expect greater returns than the stock market is providing. To achieve this Boeing would have to sell at least airliners in a year period.
Management Summary The analysis identifies both risks and benefits associated with undertaking the 7E7 project.
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. The case gives us the rates of the 3-month Treasury Bill and the casd year Treasury Bond at 0.
They will be coming to market with their new A in A beta of 3 instead of 2. Both ended June 16, For complaints, use another form. The Equity beta for the whole company and for the commercial division is calculated in the appendix.
Giving a calculated WAAC of There are several factors to these lower numbers. What Beta did you use and how did you derive it? Staff Analyst 2 — The Boeing Company.
The equity market risk premium should cae the excess return expected by investors on the market portfolio. A decrease in business travel has occurred due to cost and the advance of conferencing technologies.
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 time period above a certain price. In order for Boeing to compete in the aviation industry, they must take on some risk caae develop this new plane.
For example, a rate of 3. Upload document Create flashcards.
Boeing 7E7 case study by Aaron Casey on Prezi
Boeing had to determine what the decide what the underlying variables were which in this case happen to be development costs and the per-copy costs to build the 7E7.
If the market expectations underperform, we can also lower our estimates of Boeing 7E7 Boieng 5 cost of capital.
That ups our costs to The 7E7 project would need to provide returns of Therefore the equity market risk premium is equal to 7. You can add this document to your study collection s Sign in Available only to authorized users.
It did not quite all come together perfectly at the end. The 7E7 will carry more passengers per flight in a fuel efficient manner allowing the airline companies to justify purchasing the plane.
If Boeing falls behind regarding innovation, fuel efficiency and all the other attributes of a long haul airliner they will lose their market share.
And lastly, the weak economy has vacationers thinking of local destinations instead of traveling abroad. We used the rate of 5. This would earn a IRR of In this case it was calculated to be 7. As expected, the WACC for the commercial division is much higher due to the riskier aspect of this investment that impacts the cost of equity capital. 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.
Optimistic Best case scenario includes a cost of capital that is lower than expected.