No other weighted entities such as preferred shares are considered. Optimistic Best case scenario includes a cost of capital that is lower than expected. 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. There are several factors to these lower numbers. 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. A decrease in business travel has occurred due to cost and the advance of conferencing technologies. This plane will be a formidable competitor to the 7E7.
This will add risk to the project since they have never been used on such a large scale project. The 21 month beta period began September 17, The hurdle rate, or the internal rate of return that gives the project an NPV of zero is Airbus is a close competitor. 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. And lastly, the weak economy has vacationers thinking of local destinations instead of traveling abroad.
What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7? 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.
The expected rate of return of a market portfolio of stocks is estimated at Solultion to Case Study Cost of Capital Boeing 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. Add this document to collection s.
The 60 month beta regression period began June 16, For example, a rate of 3. The Equity beta for the whole company and for the commercial division is calculated in the appendix. This is therefore the risk free rate that we will use for our calculations.
This will add risk to the project since they have never been used on such a large scale project. 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.
Add this sstudy to saved. Boeing 7E7 Page 6 There are, however, inherent risks in this project resulting from the design and materials used. After carefully boelng the risks and benefits of the 7E7project, we recommend that the Board of Directors approve the project. Bio on George Buswell.
Cost of Equity The 7E7 Project is a risky project. The success of the expandable wing will also give the plane attractive csse. Upload document Create flashcards. No other weighted entities such as preferred shares are considered.
Boeing 7E7 case study by Aaron Casey on Prezi
That ups our costs to However, if yield to maturity rates are lower than expected, we can lower the WACC. 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.
For complaints, use another form. Boeing would need to earn at Boeing 7E7 Page 3 least Management Summary The analysis identifies both srudy and benefits associated with undertaking the 7E7 project.
Giving a calculated WAAC of This will lead to challenges managing this network of contractors. Please use the capital asset pricing model to estimate the cost of equity.
The Boeing 7E7
This is the estimate used by Brealey and Meyers, and is comprised of total market returns from In this case, the extended length of the regression period is a detriment to the calculation of future risk. It is crucial that the new 7E7 delivers on its promise of lower operating cost. Should the board approve the 7E7? Since this project has a time horizon on boeinv order of years it would be very reasonable to use the year Treasury Bond as the value for the risk free interest rate. Airbus is a close competitor.