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. In order for Boeing to compete in the aviation industry, they must take on some risk and develop this new plane. A reverse of this trend is crucial to reach some of the projected sales numbers that Boeing is counting on. 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 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. Suggest us how to improve StudyLib For complaints, use another form. Add this document to saved. It is crucial that the new 7E7 delivers on its promise of lower operating cost. The hurdle rate, or the internal rate of return that gives the project an NPV of zero is
Please use the capital asset pricing model to estimate the cost of equity. Boeing showcases diversity initiatives at World Bank meeting.
Instead of the For example, we used a market expectation of Boeing is expecting to reach this unit goal Ansaers financial calculations provided in this report show that there is a very good chance that the project will increase the wealth of the shareholders.
However, if yield to maturity rates are lower than expected, we can lower the WACC. Which capital-structure weights did you use?
You can add this document to your study collection s Sign in Available only to authorized users. 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. For complaints, use another form.
The weighted average cost of capital WACC was calculated to be 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.
The 7E7 will carry more passengers per flight in a fuel efficient manner allowing the airline companies to justify purchasing the plane. In this case it was calculated to be 7. 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.
That ups our costs to For example, a rate of 3. However, with risk comes a reward. Adding this versatility will give the 7E7 owner more options for travel routes.
Boeing 7E7 case study by Aaron Casey on Prezi
There are several factors to these lower numbers. In this case, the extended length of the regression period is a detriment to the calculation of future risk. A beta of 3 instead of 2.
Suggest us how to improve StudyLib For boeibg, use another form. It did not quite all come together perfectly at the end.
No other aswers entities such as preferred shares are considered. Boeing 7E7 Page 6 There are, however, inherent risks in this project resulting from the design and materials used.
The Boeing 7E7
The 21 month beta period began September 17, This will add to the inherent risk of the project if any of these contractors fail to deliver on time. Since this project has a time horizon on the order of years it would be very reasonable to use answdrs year Treasury Bond as the answegs for the risk free interest rate. Management Summary The analysis identifies both risks and benefits associated with undertaking the 7E7 project. The expected rate of return of a market portfolio of stocks is estimated at The 7E7 is the first plane to use a carbon body construction and employ wingtip extenders.
This would earn a IRR of This plane will be a formidable competitor to the 7E7. This will help command a ansders share of the market.
The supply chain is very large and spread over the globe.