The Boeing 7E7
EE
TT
CC
Team X
22nd May 2008
Contents
Objectives ..................................................................................................................................................... 1
Management Summary ................................................................................................................................ 1
Item 1 ............................................................................................................................................................ 2
Sub 1.1 ..................................................................................................................................................... 2
Sub 1.2 ..................................................................................................................................................... 2
Conclusion................................................................................................................................................ 2
Item 2 ............................................................................................................................................................ 2
Sub 2.1 ..................................................................................................................................................... 2
Conclusion................................................................................................................................................ 2
Item 3 ............................................................................................................................................................ 2
Sub 3.1 ..................................................................................................................................................... 2
Sub 3.2 ..................................................................................................................................................... 2
Conclusion................................................................................................................................................ 2
Item 4 ............................................................................................................................................................ 2
Item 5 ............................................................................................................................................................ 2
Appendices.................................................................................................................................................... 2
Boeing 7E7
Page i
Objectives
This report seeks to answer the following three questions about the Boeing 7E7 project:
1. 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 to estimate the cost of equity.
b. Which equity market risk premium (EMRP) did you use? Why?
c. What Beta did you use and how did you derive it?
d. Which risk-free rate did you use? Why?
e. Which capital-structure weights did you use? Why?
2. 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 Boeing’s gamble on the 7E7?
3. Should the board approve the 7E7?
Boeing 7E7
Page 1
Management Summary
Item 1
Sub 1.1
Sub 1.2
Conclusion
Item 2
Sub 2.1
Conclusion
Item 3
Sub 3.1
Sub 3.2
Conclusion
Item 4
Item 5
Appendices
Boeing 7E7
Page 2