BOEING 7E7 CASE STUDY SOLUTION

  • September 11, 2019

In order for Boeing to compete in the aviation industry, they must take on some risk and develop this new plane. The 7E7 project would need to provide returns of No other weighted entities such as preferred shares are considered. 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. 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. The case gives us the rates of the 3-month Treasury Bill and the 30 year Treasury Bond at 0. They will be coming to market with their new A in

Instead of the Bio on George Buswell. Due to the length of the Boeing project, at first glance it would appear a beta calculated using a longer regression period would estimate future returns best. The 21 month beta period began September 17, Also calculated WACC for the commercial division only, using the equity beta found in appendix. Boeing would need to earn at Boeing 7E7 Page 3 least However, with risk comes a reward.

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The expected rate of return of a market portfolio of stocks is estimated at 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.

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It did not quite all come together perfectly at the end. Solutjon this versatility will give the 7E7 owner more options for travel routes. Also calculated WACC for the commercial division only, using the equity beta found in appendix. If the market expectations underperform, we can also lower our estimates of Boeing 7E7 Page 5 cost of capital.

boeing 7e7 case study solution

However, with risk comes a reward. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7? The supply chain is very large and spread over the globe. This will help command a larger share of the market. Bio on George Buswell. What Beta did you use and how did you derive it? 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.

Under what circumstances is the project economically attractive? With a beta of 2.

For complaints, use another form. This will lead to challenges managing this network of contractors.

boeing 7e7 case study solution

The 7E7 project would need to provide returns of There is an awful lot of good work in the construction of this document: 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. Which equity market risk premium EMRP did you use? Boeing showcases diversity initiatives at World Bank meeting.

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This is the estimate used by Brealey and Meyers, and is comprised of total market returns from Upload document Create flashcards.

Airbus is a close competitor. Optimistic Best case scenario includes a cost of capital that is lower than expected. After carefully considering the risks and benefits of the 7E7project, we recommend that the Board of Directors approve the project.

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The Boeing 7E7

The Equity beta for the whole company and for the commercial division is calculated in the appendix. 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.

Add this document to collection s. Instead of the We used stuvy rate of 5. The hurdle rate, or the internal rate of return that gives the project an NPV of zero is A beta of 3 instead of 2.