Case Study Boeing Essay

2634 Words Jan 28th, 2016 11 Pages
Very good.

There is an awful lot of good work in the construction of this document: sensitivity analysis around the WACC values and consideration of other Economic Factors.

It did not quite all come together perfectly at the end.

See the detailed comments that I have made in the RHS margin.

The Boeing 7E7

Team 14

Constantine Brocoum

Courtney Delia

Stephanie Doherty

David Dubois

Radu Oprea

October 15th, 2009

Contents

Objectives 1

Management Summary 1

Cost of Equity 1

Equity Market Risk Premium 1

Beta 2

Risk Free Rate 2

Capital Structure Weights 2

Boeing 7E7 Project Evaluation 4
…show more content…
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. 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.

The market competition corroborated with the unfavorable economic conditions prompt a swift and decisive answer from Boeing. 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. 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.

Cost of Equity

The 7E7 Project is a risky project. With a beta of 2.540738, which is substantially higher than the stock market average company, volatility is expected in this investment. However, with risk comes a reward. The 7E7 project would need to provide returns of 22.7009% in order to be considered a sound investment.

E(Ri) = .0456+ 2.540738 [.117 - .0456]

E(Ri) = .0456+ 2.540738 [.0714]

E = 22.7009%

Equity Market Risk

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