Draw a graph to support your answer. Management Summary The analysis identifies both risks and benefits associated with undertaking the 7E7 project. The leader of 7e7 project, michael blairdeclared that boeing was making excellent progress on the development of 7e7 and arenegotiating terms with the authorities who need planes. For example, a rate of 3. The worst case scenario is for the stockprice to hold steady and implied volatility to decline.
The aircraft industry relies highly on customers and business confidence that could be easily influenced by accidents like war, risen of fuel price, fuel supply, global economic low down, key supplier risk, security incident. With relation to the market structure of the Dreamliner, it…. The maximum loss in the option is the premium i. On the other hand, the beta calculated within the 60 days of period gives higher beta due to the recent volatility due to the Iraq war. This plane will be a formidable competitor to the 7E7.
Change in Net Working Capital - The difference in Net working capital between twosuccessive years. Nonetheless, the systematic risk caused by the volatility in the market that could be result of any event that may occur i. The engineering design could push up the costssignificantly whereas; if Boeing succeeded in using composite materials then the constructioncost would reduce. Maximum Gain:The initial years of the project have huge expenses and with the put option, the option holderswill get profits. Assumptions are 2,500 aircrafts sold over 20 years.
However, the lower covariance, and higher variance would result low beta. Yetagain it failed to get recognition for its approval. Boeing faced stiff competition from French based Airbus and had not brought forth a successful new product in recent years. The development of new airframe meant huge initial cash outflows which should be gained backin a decade or two. Is this the good time to do so? However, with risk comes a reward. The stock price is above the strikeprice and if the option is still open, the buyer would not exercise his option.
. There was great uncertainty surrounding the manufacturing cost of the 7E7. This is because the commercial segment has market risk due to systematic risk, in contrast the defense segment, there would be stable conditions, and stable growth as well, and even in systematic risk might benefit the segment. To make the aircraft capable of flying both short haul and longhaul distances different wingspans for the aircrafts will be required. At a time of great political and economic uncertainty, Michael Bair said: Such flexibility would allow airlines to offer nonstop service on routes that required long-range planes but did not justify the subsequent larger size.
It is set to begin flights in 2006. Dreamliner was the first aircraft to usecarbon-reinforced composite material which would be stronger and lighter than theconventionally used aluminum. Boeing 7E7 a financial analysis. The worst that can happen is for thestock to fall to zero, in which case the seller would buy the stocks at the strike price and sell it tothe holder. Free Cash Flow — The free cash flow is calculated using the following formula: F.
Is there anything else the board of directors should consider in assessing the financial appeal of this project? Defense corporations were the beneficiaries when the world became unstable due to the terrorist attacks on September 11, Beta unlevered lockheed 0. Moreover, the beta is calculated by taking variance of the stock prices, and covariance of the index and share price. Boeing 7E7 case study by Aaron Casey on Prezi Rate of price increases: The problem 3 whether the project can be pulled off within a certain price range — Boeing board wants de page Paragraph 1 Start at final last case The problem 4: Waccsubstituting the below assumed values lockheed martin and northrop grumman. Aircraft manufacturersbringing forth a new product has to take extra care since a miss in this assessment can place a company in a position to fail the result of huge cash outflows required. The first stage of their approach is the project definition phase during which Boeing identified holes in the market not met by existing planes, assessed future airline needs, considered alternative… article by The Economist about the Boeing Company, shows that the company is being investigated for moving production from Washington to South Carolina in an attempt to evade labor unions.
Boeing forecasted 24,276new commercial aircraft over 20 year period from 2003 to 2022 which was valued at 1. You can add this document to your saved list Sign in Available only to authorized users. The long tradition of aerospace leadership and innovation has… Case Study of Boeing's Decision to Develop the 777 1. Maximum Gain:The gains are limited, especially relative to the extent of risk. On the other hand, higher covariance, and lower variance would result in low beta. Blair also announced the approval fromboard of Directors for the new planes design and development and the planes would be in servicefrom 2008.
Airbus is a close competitor. The chance administration device and the danger administration committee are accountable for threat administration, but it's The inner auditor's job to make sure the danger administration plan performs. The best that can happen is for the stock to make a big move ineither direction. On the other hand, stocks beta varies by the nature of the industry, and its relation with the market. However, thedemand was dependent on whether Boeing will be able to deliver the promise of fuel efficiencyand range flexibility. There is an awful lot of good work in the construction of this document: Add this document to saved. Release Date: 29 July 2004.