Boeing 777 Finance Case Study

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Boeing 777 Project: Summary for the Board of Directors Boeing is currently operating with the majority market share of the commercial sector of aircraft manufacturing. Frank Shrontz, our CEO, has recently stated his goal to increase the company’s return on equity from its current average of 12%. The following summary will delve into the most appealing project for the future of this firm: the 777 aircraft. The purpose of this new product is to maintain our competitive advantage in commercial airline production by completing a family of Boeing airplanes. The following net present value analysis will be used to determine the potential profitability of the 777 project. Our analysts concluded that a levered equity beta of 1.2939 was…show more content…
The sensitivity analysis provided reveals several gambles made by Boeing. They include the use of the highest estimated selling price per plane, units per year, rate of price increases, and market size among others. Even with all of the risks and estimations, Boeing should launch the 777 in October 1990 because the firm must not only stay competitive but keep their market share in the future. While the 777 project represents a huge risk with high levels of capital, it is a necessary risk since other firms are also completing their full product lines of airplanes. Also, the introduction of a derivative after 10 years and reduction in R&D costs could provide additional sales revenue and further affect the NPV of the project. While this project was certainly a gamble for Boeing in 1990, hindsight shows they made the right decision in creating the new 777. In October of 1990, right after the project was implemented, United Airlines placed a $28 billion order therefore “cementing the program Boeing was close to scrapping.” By March of 1994 they were already loaded down with 147 firm orders and 108 options with expectations of quickly increasing numbers. In June of 2008 it became evident that this aircraft had the differentiating ability to beat out its competitors. Headlines read “Boeing under intense pressure to increase production of top-selling fuel thrifty 777-300 ER…as airlines struggle

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