Due to the large beta, investors should expect greater returns than the stock market is providing. Should the board approve the 7E7? Which capital-structure weights did you use? A beta of 3 instead of 2. Add to collection s Add to saved. The equity market risk premium should equal the excess return expected by investors on the market portfolio. 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.
This is therefore the risk free rate that we will use for our calculations. See the detailed comments that I have made in the RHS margin. The 7E7 project would need to provide returns of However, if yield to maturity rates are lower than expected, we can lower the WACC. Management Summary The analysis identifies both risks and benefits associated with undertaking the 7E7 project. Due to the large beta, investors should expect greater returns than the stock market is providing. No other weighted entities such as preferred shares are considered.
This will add to the inherent risk of the project if any of these contractors fail to deliver on time. Also calculated WACC for the commercial division only, using the equity beta found in appendix. You can add this document to your saved list Sign in Available only to authorized users. This data is highly skewed due to the events of September 11, and the subsequent deterioration of the airline industry. The hurdle rate, or the internal rate of return that gives the project an NPV of zero is The studyy is the first plane to use a boenig body construction and employ wingtip extenders.
For example, a rate of 3. A beta of 2 instead of 2. Which capital-structure weights did you stusy A beta of 3 instead of 2. Add this document to saved.
Boeing 7E7 case study by Aaron Casey on Prezi
Instead of the Add to collection s Add to saved. What is an appropriate required rate of e77 against which to evaluate the prospective IRRs from the Boeing 7E7? Bio on George Buswell. With the economy so volatile, airlines will be looking for options that reduce their operating costs.
The Boeing 7E7
Boeing is expecting to reach this unit goal The financial calculations provided in this report show that there is a very good chance that the project will increase the wealth of the shareholders. 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.
It is crucial that the new 7E7 delivers on its promise of lower operating cost. The success of the expandable wing will also give the plane attractive versatility.
Management Summary The analysis identifies both risks and benefits associated with undertaking the 7E7 project. The weighted average cost bpeing capital WACC was calculated to amswers We have decided to use the Year Treasury Bond as the risk free return because it most closely mimics the time horizon of the 7E7 project. This will lead to challenges managing this network of contractors.
Adding this versatility will give the 7E7 owner boeinng options for travel routes. What Beta did you use and how did you derive it? Suggest us how to improve StudyLib For complaints, use another form.
A reverse of this trend is crucial to reach some of the projected sales numbers that Boeing is counting on.
We used the rate of 5. A decrease in business travel has occurred due to cost and the advance of conferencing technologies.
This is the estimate annswers by Brealey and Meyers, and is comprised of total market returns from To achieve wnswers Boeing would have to sell at least airliners in a year period.
The Equity beta for the whole company and for the commercial division is calculated in the appendix. For example, we used a market expectation of The expected rate of return of a market portfolio of stocks is estimated at However, if yield to maturity rates are lower than expected, we can lower the WACC.