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University of Nottingham Ningbo China Business School Academic Year 2015/16 Autumn Semester CORPORATE FINANCE Prof. Michele Geraci Analysis of Boeing Investment Plan Yuliana Tan Student ID: 6519982 Word Count: 2,220 (exc. Table of Contents, Tables, Charts & References) Executive Summary This paper discusses whether The Boeing Company should build a plant specializing in producing aircraft 787 in China. Having analyzed the project from a purely financial view, through the calculation of NPV, IRR, Profitability Index (PI) and Payback Period for 30 years, it is recommended that The Boeing Company do so. The project is assumed to start in 2016, with 2 years construction and sales beginning in 2018. The calculations are made on the…show more content…
Although according to Boeing’s statement, the number of planes produced in 2018 is supposed to be 155 annually, the writer is adapting a conservative approach in case that production lags behind schedule. The growth rate of 4% is calculated from the increment of 144 planes annually to 168 planes annually, which is an additional 24 planes in 4 years. As the number of planes produced in 2018 in this paper is different from Boeing’s expectations, the number of planes produced in 2020 is only 151 planes, instead of 168 planes (14 planes x 12 months). An important assumption is also made regarding the number of sales, which is that 787 planes are solely produced in China and productions of the same model are ceased in other plants. The initial price of the planes in 2018 (USD 149,760,000) is derived from the average listed price of all 787 planes which is USD 288,000,000 (rounded off from the actual average price of USD 288,839,012.80 in 2018 after increment) multiplied by 52%, because Boeing’s market price for a plane is usually round 50 – 55% of its listed price. 5 The price growth of 2.9% is the price growth based on Boeing’s previous financial statements. The cash outflows are made up of COGS, Annual Employees’ Salaries, Selling, General and Administrative Expenses, and Depreciation Expense. The COGS (materials) is calculated using 82% from Total Sales, which is also based on Boeing’s financial statements (COGS

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