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. However, if yield to maturity rates are lower than expected, we can lower the WACC. We used the rate of 5. Management Summary The analysis identifies both risks and benefits associated with undertaking the 7E7 project. 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. Due to the large beta, investors should expect greater returns than the stock market is providing. Solultion to Case Study Cost of Capital
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. This will lead to challenges managing this network of contractors. The 21 month beta period began September 17, Solultion to Case Study Cost of Capital If the market expectations underperform, we can also lower our estimates of Boeing 7E7 Page 5 cost of capital.
The equity goeing risk premium should equal the excess return expected by investors on the market portfolio. We used the rate of 5.
Due to the length of the Boeing project, at first glance it would appear a beta calculated using a longer regression period would estimate future returns best.
Boeing 7E7 case study by Aaron Casey on Prezi
Csse the market expectations underperform, we can also lower our estimates of Boeing 7E7 Page 5 cost of capital. The 60 month beta regression period began June 16, Boeing would need to earn at Boeing 7E7 Page 3 least It 77e crucial that the new 7E7 delivers on its promise of lower operating cost.
Instead of the There is an awful lot of good work in the construction of this document: 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.
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 solutoin above a certain csae. Solultion to Case Study Cost of Capital This will add to the inherent risk of the project if any of these contractors fail to deliver on time. For example, a rate of 3. Cost of Equity The 7E7 Project is a risky project.
The Boeing 7E7
The 7E7 will carry more passengers per flight in a fuel efficient manner allowing the airline companies to justify purchasing boeiny plane. In order for Boeing to compete in the aviation industry, they must take on some risk and develop this new plane.
No other weighted entities such as preferred shares are considered. Add to collection s Add to saved. Should the board approve the 7E7?
With the economy so volatile, airlines will be looking for options that reduce their operating costs. You can add this document to your study collection s Sign in Available only to authorized users. 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.
This is the estimate used by Brealey and Meyers, solhtion is comprised of total market returns from Upload document Create flashcards. Adding this versatility will give the 7E7 owner more options for travel routes.
This data is highly skewed due to the events of September 11, and the subsequent deterioration of the airline industry. 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. The Equity beta for the whole company and for the commercial division is calculated in the appendix.
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.
In this case, the extended length of the regression period is a detriment to the calculation of future risk. Which capital-structure weights did you use?
The success of the expandable wing will also give the plane attractive versatility. The case gives us the rates of the 3-month Treasury Bill and the 30 year Treasury Bond at 0. This will lead to challenges managing this network of contractors.
This will help command a larger share of the market.