BOEING 7E7 CASE STUDY ANSWERS

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.

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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?

boeing 7e7 case study answers

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.

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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.

boeing 7e7 case study answers

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 case study answers

Boeing 7E7 Page 6 There are, however, inherent risks in this project resulting from the design and materials used. Instead of the

BOEING 7E7 CASE STUDY ANSWERS

The market competition corroborated with the unfavorable economic conditions prompt a swift and decisive answer from Boeing. 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. For complaints, use another form. Also calculated WACC for the commercial division only, using the equity beta found in appendix. A reverse of this trend is crucial to reach some of the projected sales numbers that Boeing is counting on. The expected rate of return of a market portfolio of stocks is estimated at The hurdle rate, or the internal rate of return that gives the project an NPV of zero is

If Boeing falls behind regarding innovation, fuel efficiency and all the other attributes of a long haul airliner they will lose their market share. In this case it was calculated to be 7. This plane will be a formidable competitor to the 7E7. After carefully considering the risks and benefits of the 7E7project, we recommend that the Board of Directors approve the project. To achieve this Boeing would have to sell at least airliners in a year period. This would earn a IRR of

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. Cade will be xase to market with their new A in No other weighted entities such as preferred shares are considered.

This data is highly skewed due to the events of September 11, and the subsequent deterioration of the airline industry. The 7E7 is the first plane to use a carbon body construction and employ wingtip extenders.

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A beta of 2 instead of 2. Add this document to collection s. This will lead to challenges managing this network of contractors.

boeing 7e7 case study answers

This is the estimate used by Brealey and Meyers, and is comprised of total market returns from What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7? With a beta of 2. 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. This would earn a IRR of If Boeing falls bosing regarding innovation, fuel efficiency and all the other attributes of a long haul airliner they will lose their market share.

In order for Boeing to compete in the aviation industry, they must take on some risk and develop this new plane.

srudy You can add this document to your saved list Sign in Available only to authorized users. Giving a calculated WAAC of You can add this document to your study collection s Sign in Available only to authorized users.

The Boeing 7E7

The weighted average cost of capital WACC was calculated to be The market competition corroborated with the unfavorable economic conditions prompt a swift and decisive answer from Boeing. Airbus is a close competitor.

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.

The Equity beta for the whole company and for the commercial division is calculated in the appendix. Your e-mail Input 7w7 if you want to receive answer.

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Which equity market risk premium EMRP 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.

For complaints, use another form. However, with risk comes a reward. 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.

Boeing 7E7 case study by Aaron Casey on Prezi

Also calculated WACC for the commercial division only, using the equity beta found in appendix. Adding answeers versatility will give the 7E7 owner more options for travel routes. This will add risk to the project since they have boenig been used on such a large scale project. 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.

boeing 7e7 case study answers

Suggest us how to improve StudyLib For complaints, use another form. Optimistic Best case scenario includes a cost of answerd that is lower than expected.