Case Study Boeing Essay
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
October 15th, 2009
Management Summary 1
Cost of Equity 1
Equity Market Risk Premium 1
Risk Free Rate 2
Capital Structure Weights 2
Boeing 7E7 Project Evaluation 4 …show more content…
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