Case Study Boeing

In: Business and Management

Submitted By koeliedonder
Words 2629
Pages 11
Very good.

There is an awful lot of good work in the construction of this document: sensitivity analysis around the WACC values and consideration of other Economic Factors.

It did not quite all come together perfectly at the end.

See the detailed comments that I have made in the RHS margin.

The Boeing 7E7

Team 14

Constantine Brocoum

Courtney Delia

Stephanie Doherty

David Dubois

Radu Oprea

October 15th, 2009

Contents

Objectives 1

Management Summary 1

Cost of Equity 1

Equity Market Risk Premium 1

Beta 2

Risk Free Rate 2

Capital Structure Weights 2

Boeing 7E7 Project Evaluation 4

Circumstances for an economically attractive project 4

Market Demand 4

Market Share 4

Sensitivity Analysis 4

Conclusion 7

Board approval for the project? 7

Appendices 7

Appendix A 7

Objectives

This report seeks to answer the following three questions about the Boeing 7E7 project:

1. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7?

a. Please use the capital asset pricing model to estimate the cost of equity.

b. Which equity market risk premium (EMRP) did you use? Why?

c. What Beta did you use and how did you derive it?

d. Which risk-free rate did you use? Why?

e. Which capital-structure weights did you use? Why?

2. Judged against your WACC, how attractive is the Boeing 7E7 project?

a. Under what circumstances is the project economically attractive?

b. What does sensitivity analysis (your own and/or that shown in the case) reveal about the nature of Boeing’s gamble on the 7E7?

3. Should the board approve the 7E7?

Management Summary

The analysis identifies…...

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