4.Sensitivity Analysis Of The 777 Project. From The Case

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4. SENSITIVITY ANALYSIS OF THE 777 PROJECT
From the case information, we can see the various internal rates of return estimated for the Boeing 777 project. In addition to the expected, mid-range estimate, we analyzed the high and low estimates as well for price, volume, and GS&A and R&D.
4.1 LOW IRR
4.1.1PRICE
The market share for mid-to-large passenger aircrafts is comprised of five major firms including; Boeing, Northrop, Grumman, McDonnell/Douglas, and Lockheed. The increased competition in this space puts downward pressure on the price, forcing Boeing to evaluate the possibility of a market price below the baseline assumption of $130M. The provided data illustrate the scenario in which the Boeing 777 price could be forced lower to
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For every 1% decrease in R&D, the IRR will increase by 1%. Assuming a stable GS&A of 4% and the estimated R&D of 2.4%, the projected IRR is 19.5%, a .6% increase of the base-case 18.9%. R&D Expense Sales
GS&A Sales 1.0% 2.0% 3.0% 4.0% 5.0%
1% 23.5% 22.7% 21.8% 20.9% 19.9%
2% 22.6 21.8 20.8 19.9 19.0
3% 21.7 20.8 19.9 18.9 17.9
4% 20.8 19.9 18.9 17.9 16.9
5% 19.9 18.9 17.9 16.9 15.8
6% 18.9 17.9 16.9 15.8 14.7
7% 17.9% 16.8% 15.8% 14.7% 13.5% Figure 6: IRR sensitivity by GS&A and R&D Low Expected High
% GS&A/Sales 7 4 1
% R&D/Sales 5 3 1
Adjusted R&D 4 2.4 .8
IRR 13.5 18.9 23.5
Adjusted IRR 14.5 19.5 23.7

Figure 7: Adjusted R&D IRRs

WACC Price Volume
14.29% 100 750 18.90% 120 1100
18.90% 130 1000
21.56% 130 1310
4.3 BREAKEVEN POINT
We believe the point at which the project breaks even is noteworthy in this analysis. Accounting for variations in price and volume, we compiled the following estimates listed in Figure 7.

Figure 7: Critical points to break even
5. LIMITATIONS OF THE DISCOUNTED CASH FLOW ANALYSIS
5.1 EFFICIENCY IMPROVEMENTS
5.2 MARKET CONDITIONS
The DCF cannot account for changes in the current economic system with substantial accuracy. A stable market provides stable betas, but the global economy in October of 1990 had become unstable. Future economic recovery or growth cannot be assumed, nor can continued decline. By analyzing multiple WACCs and IRRs, we attempted to view the case from a

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