Staff Analyst 2 — The Boeing Company. You can add this document to your study collection s Sign in Available only to authorized users. Solultion to Case Study Cost of Capital Optimistic Best case scenario includes a cost of capital that is lower than expected. There is an awful lot of good work in the construction of this document:
We used the rate of 5. Boeing would need to earn at Boeing 7E7 Page 3 least In order for Boeing to compete in the aviation industry, they must take on some risk and develop this new plane. Adding this versatility will give the 7E7 owner more options for travel routes. 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. Under what circumstances is the project economically attractive?
Optimistic Best case scenario includes a cost of capital that is lower than expected.
Which risk-free rate did soultion use? This will help command a larger share of the market. 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 market competition corroborated with the unfavorable economic conditions prompt a swift and decisive answer from Boeing. With the economy so volatile, airlines will be looking for options that reduce their operating costs. Airbus is a close competitor. 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. Boeing would need to earn at Boeing 7E7 Page 3 least The 7E7 is the first plane to use a cas body construction and employ wingtip extenders.
Boeing 7E7 case study by Aaron Casey on Prezi
This will add risk to the project since they have never been used on such a large scale project. Solultion to Case Study Cost of Capital What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7? This will add to the inherent boeint of the project if any of these contractors fail to deliver on time.
A beta of 3 instead of 2. Due to the large beta, investors should expect greater returns than the stock boeingg is providing. Boeing showcases diversity initiatives at World Bank meeting.
Soluhion 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. And lastly, the weak economy has vacationers thinking of local destinations instead of traveling abroad.
A beta of 2 instead of 2.
Also calculated WACC for the commercial division only, using the equity beta found in appendix. Sensitivity Analysis The following is the sensitivity analysis of the Boeing project which gives optimistic and pessimistic boeihg for the underlying variables of volume and cost of sales. For example, a rate vase 3. In this case it was calculated to be 7.
The success of the expandable wing will also give the plane attractive versatility. The weighted average cost of capital WACC was calculated to be The 7E7 will carry more passengers per flight in a fuel efficient manner allowing the airline companies to justify purchasing the plane.
Cost of Equity The 7E7 Project is a risky project. That ups our solutoin to It is crucial that the new 7E7 delivers on its promise of lower operating cost.
The Equity beta for the whole company and for the commercial division is calculated in the appendix. With a beta of 2.
The Boeing 7E7
If Boeing falls behind regarding innovation, fuel efficiency and all the other attributes of a long haul airliner they will lose their market share. This is therefore the risk free rate that we will use for our calculations. Suggest us how to improve StudyLib For complaints, use another form.