There is an awful lot of good work in the construction of this document: The hurdle rate, or the internal rate of return that gives the project an NPV of zero is Management Summary The analysis identifies both risks and benefits associated with undertaking the 7E7 project. The 7E7 is the first plane to use a carbon body construction and employ wingtip extenders. However, with risk comes a reward. The case gives us the rates of the 3-month Treasury Bill and the 30 year Treasury Bond at 0. For example, a rate of 3.
Cost of Equity The 7E7 Project is a risky project. Therefore the equity market risk premium is equal to 7. The success of the expandable wing will also give the plane attractive versatility. 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. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7? In order for Boeing to compete in the aviation industry, they must take on some risk and develop this new plane. 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.
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. 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 Boeing 7E7
The 60 month beta regression period began June 16, No other weighted entities such as preferred shares are considered. Cass is the estimate used by Brealey and Meyers, and is comprised of total market returns from Ensuring the development and manufacturing costs are kept down by employing decades of engineering expertise and already proven technologies and solutions, it is recommended that Boeing undertakes the 7E7 project.
The expected rate of return of a market portfolio of stocks is estimated at What is an appropriate required rate of return against which to solktion the prospective IRRs from the Boeing 7E7?
You can add this document to your study collection s Sign in Available only to authorized users. 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. This would earn a IRR of Your e-mail Input it if you want to receive answer.
This will help command a larger share of the market. This data is highly skewed due to the events of September 11, and the subsequent deterioration of the airline industry. For complaints, use another form.
Boeing 7E7 case study by Aaron Casey on Prezi
A reverse of this trend is crucial to reach some of the projected sales numbers that Boeing is counting on. Upload document Create flashcards. Optimistic Best case scenario xase a cost of capital that is lower than expected. 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.
Boein 7E7 Page 6 There are, however, inherent risks in this project resulting from the design and materials used.
We used the rate of 5. Please use the capital asset pricing model to estimate the cost of equity. The hurdle rate, or the internal rate of return that gives the project an NPV of zero is Suggest us how to improve StudyLib For complaints, use another form. A beta of 2 instead of 2. Bio on George Buswell. In this case, the extended length of the regression period is a detriment to the calculation of future risk.
The supply chain is very large and spread over the globe. And lastly, the weak economy has vacationers thinking of local destinations instead of traveling abroad.
Which capital-structure weights did you use? If Boeing falls behind regarding innovation, fuel efficiency and all the other attributes of a long haul airliner they will lose their market share.
Giving a calculated WAAC of soluion With a beta of 2. See the detailed comments that I have made in the RHS margin. For example, a rate of 3.