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The Boeing 7e7

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Objectives

The objectives of The Boeing 7E7 case study is to seek the answer for the project question.

Why is Boeing contemplating the launch of the 7E7 project? Is this the good time to do so? How would we know if the 7E7 project will create value? How to estimate the WACC?

Is there anything else the board of directors should consider in assessing the financial appeal of this project? Why might the board vote 'yes' on the 7E7, when the cost of capital estimate is greater than the IRR? Why might the board vote 'no' if the cost of capital is less than the IRR?

What should the board do?

Introduction

Ultimately Boeing needs to determine if the project will be profitable and if it will have positive cash flows in …show more content…

Airbus, the market leader, produced planes to serve the short, medium and extended-range routes. Analysts believe that Airbus seemed to be more bullish on the future of the large aircraft market leaving Boeing an opportunity to gain back market share in the mid-size market, assuming that Airbus did not pursue the mid-range segment with a competing product. Boeing had a drop in commercial airplanes delivered from 527 in 2001 to 381 in 2002 and needed this project to keep them in the hunt with Airbus.

The board will also have to consider the decades it may take to recoup the costs of starting this project. Development costs in the airline industry are substantial leading to many years of negative cash flows. The introduction of a new plane is a make-or-break activity for the producers and requires huge financing capabilities. The development costs and per-copy costs were difficult to predict, and Boeing also faced engineering uncertainty with the project. The success of the project depends heavily on Boeing's ability to keep the production costs low and actually deliver a more efficient aircraft than the competition.

Yes this is the good time for Boeing to launch their new aircraft. At this time, the price of raw materials are very cheap caused by unexpected disasters. Although there’s no demand at this moment, but they can still continue making the aircraft. The further information will describe how Boeing can continue

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