Boeing 7e7 Essay

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7E7 Project Overview According to our detailed analysis, based on our assumptions, we worked out a WACC of 9.48%, which is lower than the IRR in the case analysis. This WACC implied a NPV of 4133 million dollars. In addition, in the sensitivity analysis, the WACC is lower than the IRR in most scenarios, which include unit volume sold, price premium, development cost and COGS as percentage sales. Now the commercial-aircraft segment of Boeing is facing stiff competition from Airbus and losing its advantage. Boeing executives wish to come up with a more flexible and fuel efficient jetliner “7E7” to regain market share. First, we choose weighted cost of capital, WACC, to be the proper discount rate for free cash flow, because WACC is the required rate of return of a company as a whole. According to the model, we have to find return on debts and return on equity. Given the estimated period of 30 years, we choose the YTM of a bond will mature on 2038/2/15 as the cost of debts, the number of which is 6.153%. We use CAPM to estimate the cost of equity. According to the model, we have three factors to determine: risk free rate, equity beta and risk premium. Given the 30-year estimated operation period, we use the yield on 30-year Treasury bond, the number of which is 4.56%, as the risk free rate. In addition, we choose the historical risk premium of 5.6%, calculated from 1926 to 2003. The risk premium comes with a standard error, so we should go as far as we can to minimize the effect of standard error. In addition, the end of this time period is exactly the start of 7E7 program. The equity beta of commercial-aircraft should be calculated from leveraged beta of this segment. We get 12.35% for the cost of equity. We choose the value line beta to calculate these factors, in that they were calculated from the latest five-year weekly data. In order to estimate

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