Case study comes from: Case Studies in Finance: Managing for Corporate Value Cre
ID: 2784724 • Letter: C
Question
Case study comes from: Case Studies in Finance: Managing for Corporate Value Creation - 3 Year Option, 7th Edition Robert Bruner; Kenneth Eades; Michael Schill
here is the link https://ambassadored.vitalsource.com/#/books/1259542610/cfi/314!/4/4@0.00:30.4 The information from the case
Central to any recommendation that Bair would make to Boeing’s board of directors was an assessment of the economic profitability of the 7E7 project. Would the project compensate the shareholders of Boeing for the risks and use of their capital? Were there other considerations that might mitigate the economic analysis? For instance, to what extent might organizational and strategic considerations influence the board? If Boeing did not undertake the 7E7, would it be conceding leadership of the commercial-aircraft business to Airbus?
Please answer the questions in the conclusion.
Explanation / Answer
As the above case study tell that Boeing company has announced to plan a new super-efficient jet which is known as "7E7" or the Dreamliner. It was a gamble played by the Boeing, similar in the magnitude to ease the introduction of the airline i.e. 777 and 747. This technological superiority of the new airframe and also the important fact is that it would penetrate a rapidly growing market segment which has been argued for the project approval. On the other side, the current market for the commercial-aircraft business to the Airbus was depressed, reflecting the risk of terrorism, war as well as SARS, a contagious illness that may result in the global traveling warnings. The Boeing's Board of Director would need to weigh these considerations that in the grant the final approval which proceeds with the projects. The task is to evaluate the 7E7 project against the financial standards, the investors required a return. This case gives us the internal rate of return for the 7E7 project under the base case and the alternative forecasts also. Here we also estimate the WACC for Boeing's commercial-aircraft business to Airbus segment in order to evaluate these IRRs. From this, the result would identify the key value drives and this may distinguish on a qualitative basis.