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Boeing 7E7 Case Questions PDF

This document provides questions to guide an analysis of Boeing's potential 7E7 project. The questions address: 1) Why Boeing is considering the 7E7 and if it is a good time, 2) How to estimate the required rate of return to evaluate the project, 3) How attractive the 7E7 project is based on the estimated required rate of return, and 4) Whether the board should approve the 7E7 project based on the analysis. The questions also include guidance on using the capital asset pricing model to estimate the cost of equity and weighted average cost of capital for the project.

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Erick Clark
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422 views

Boeing 7E7 Case Questions PDF

This document provides questions to guide an analysis of Boeing's potential 7E7 project. The questions address: 1) Why Boeing is considering the 7E7 and if it is a good time, 2) How to estimate the required rate of return to evaluate the project, 3) How attractive the 7E7 project is based on the estimated required rate of return, and 4) Whether the board should approve the 7E7 project based on the analysis. The questions also include guidance on using the capital asset pricing model to estimate the cost of equity and weighted average cost of capital for the project.

Uploaded by

Erick Clark
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Boeing

7E7 Case Questions:



Note: Use the following questions to guide your case analysis report, which should be a
complete piece of work. Follow the instructions about format on the syllabus. Further,
the following questions should all be addressed in your report but should not be the
constraints limit your thoughts.

1. Why is Boeing contemplating the launch of the 7E7 project? Is this a good time to
do so?

2. 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 (CAPM) to estimate the cost of equity.
Which risk-free rate, beta, and equity market risk premium (EMRP) did you use?
Why? (There are 4 estimates of EMRP for you to choose: 6.4%(geometric mean over
T-bills; 4.7% (geometric mean over T-bonds); 8.4% (arithmetic mean over T-bills)
and 6.4% (arithmetic mean over T-bonds).

b. How do you calculate the project cost of debt?

c. Which capital structure weight did you use? Why?

d. What is your estimate of the WACC for the 7E7 project? How sensitive is your
estimate to various assumptions?

3. 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 Boeings gamble on the 7E7?


4. Should the board approve the 7E7?

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