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Boeing 7E7 Case Study

Boeing 7E7 Case Study - Boeing 7E7 Case Study This case...

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Boeing 7E7 Case Study This case analyzes the risk and reward of taking the Boeing 7E7 project. The project is profitable and will add value to shareholders. Due to the downturn of the airline industry in 2001 and market competition, Boeing needs to come up with a new project that will stimulate their earnings. The possible solution is the manufacturing of the 7E7, which will be a mid-size plane that will be able to fly short and long routes. It will also improve fuel economy with their new engine design. Development and manufacturing costs will play a major factor in the decision process of accepting this project. However, if they keep the costs low, Boeing should accept the 7E7 project. A beta of 2.5 was used, because the project is very risky. With high risk investments, also come the possibility of high returns. In this case, Boeing’s cost of equity was 18.16%. The estimated 74-year equity market risk premium (EMRP) was 5.44 %. An estimated expected rate of return of 10% was used.
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