With the economy so volatile, airlines will be looking for options that reduce their operating costs. The weighted average cost of capital WACC was calculated to be We used the rate of 5. We have decided to use the Year Treasury Bond as the risk free return because it most closely mimics the time horizon of the 7E7 project. Which risk-free rate did you use? The success of the expandable wing will also give the plane attractive versatility. This data is highly skewed due to the events of September 11, and the subsequent deterioration of the airline industry.
In this case it was calculated to be 7. Both ended June 16, The expected rate of return of a market portfolio of stocks is estimated at With a beta of 2. Please use the capital asset pricing model to estimate the cost of equity. 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.
This is therefore the risk free rate that we will use for our calculations. Airbus is a close competitor. Add this document to saved.
Management Summary The analysis identifies both risks and benefits associated with undertaking the 7E7 project.
We used the rate of 5. Optimistic Best case scenario includes a cost of capital that is lower than expected. Your e-mail Input it if you want to receive answer.
Boeing 7E7 case study by Aaron Casey on Prezi
For complaints, use another form. As you will find, the financial calculations provided in this report show that the project will increase the wealth of boing shareholders, also identifying the associated risks and how those could be minimized.
It did not quite all come together perfectly at the end. If Boeing falls behind regarding innovation, fuel efficiency and all the other attributes of a long haul airliner they will lose their market share. The 60 month beta regression period began June 16, Suggest us how to improve StudyLib For complaints, use another form. There is an awful lot of good work in the construction of this document: If the market expectations underperform, we can also lower our estimates of Boeing 7E7 Page 5 cost of capital.
For example, a rate of 3. 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. Due to the large beta, investors boeinh expect greater returns than the stock market is providing.
And lastly, the weak economy has vacationers thinking of local destinations instead of traveling abroad. Bio on George Buswell.
The Boeing 7E7
In order for Boeing to compete in the aviation industry, they must take on some risk and develop this new plane. Under what circumstances is the project economically attractive? Which risk-free rate did you use?
Which equity market risk premium EMRP did you use? It is crucial that the new 7E7 delivers on its promise of lower operating cost. However, with risk comes a reward.
Boeing is expecting to reach this unit goal The financial calculations vase in this report show that there is a very good chance that the project will increase the wealth of the shareholders. Adding this versatility will give the 7E7 owner more options for travel routes.
This will lead to challenges managing this network of contractors.
However, if yield to maturity rates are lower than expected, we can lower the WACC. In this case, the extended length of the regression period is a detriment to the calculation of future risk. As expected, the WACC for the commercial division wtudy much higher due to the riskier aspect of this investment that impacts the cost of equity capital.
The new 7E7 will have lower operating costs answwers 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.
There are several factors to these lower numbers.
Boeing 7E7 Page 6 There are, however, inherent risks in this project resulting from the design and materials used. Instead of the