This would earn a IRR of This will lead to challenges managing this network of contractors. That ups our costs to 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. Since this project has a time horizon on the order of years it would be very reasonable to use the year Treasury Bond as the value for the risk free interest rate. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7?
Also calculated WACC for the commercial division only, using the equity beta found in appendix. In this case, the extended length of the regression period is a detriment to the calculation of future risk. This will add to the inherent risk of the project if any of these contractors fail to deliver on time. The success of the expandable wing will also give the plane attractive versatility. And lastly, the weak economy has vacationers thinking of local destinations instead of traveling abroad. This will help command a larger share of the market. The 21 month beta period began September 17,
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. The expected rate of return of a market portfolio of stocks is estimated at The supply chain is very large and spread over the globe.
Boeing 7E7 case study by Aaron Casey on Prezi
Add this document to saved. In this case, the extended length of the regression period is a detriment to boeeing calculation of future risk. 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. Which risk-free rate did you use? Instead of the In order for Boeing to compete in the aviation industry, they must take on some risk and develop this new plane.
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For example, a rate of 3. The market competition corroborated with the unfavorable economic conditions prompt a swift and decisive answer from Boeing. Which capital-structure weights did you use? The equity market risk premium should equal the excess casee expected by investors on the market portfolio.
The Boeing 7E7
Solultion to Case Study Cost of Capital And lastly, the weak economy has vacationers thinking of local destinations instead of traveling abroad.
The case gives us the rates of the 3-month Treasury Bill and the 30 year Treasury Bond at 0.
See the detailed comments that I have made in the RHS margin. With a beta of 2.
They will be coming to market with their new A in Also calculated WACC for the commercial division only, using the equity beta stduy in appendix.
The 7E7 project would need to provide returns of The success of the expandable wing will also give the plane attractive versatility.
If the market expectations underperform, we can also lower our estimates of Boeing 7E7 Page 5 cost of capital. For example, we used a market expectation of 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. Due to the large beta, investors should expect greater returns than the stock market is providing.
Since this project has a time horizon on the order of years it would be very reasonable to use the year Treasury Bond as the value studj the risk free interest rate. This will add risk to the project since they have never been used on such a large scale project.
Giving a calculated WAAC of This plane will be a formidable competitor to the 7E7. Both ended June 16, To achieve this Boeing would have to sell at least airliners in a year period. Suggest us how to improve StudyLib For complaints, use another form. This will help command a larger share of the market.
A reverse of this trend is crucial to reach some of the projected sales numbers that Boeing is counting on.