Boeing777+Assignment

Boeing777+Assignment - nature of Boeing’s gamble? c....

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FIN 4414 – F INANCIAL M ANAGEMENT – S PRING 2012 “The Boeing 777” Case Assignment Due: February 9, 2012 Case: "The Boeing 777," Robert F. Bruner, Darden Graduate School of Business Administration, Case # UVA-F-1017, University of Virginia, Revised 11/97, 34 Pages. Main Question: Do you recommend the launch of the Boeing 777 in October 1990? Why or why not? Additional Questions: 1. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 777? a. What beta did you use and why? b. When you used the CAPM , which risk premium did you use and why? c. Which capital structure weights did you use and why? 2. Judged against your WACC, how attractive is the Boeing 777 project? a. Under what circumstances is this project economically attractive? b. What does the sensitivity analysis presented in the case reveal about the
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Unformatted text preview: nature of Boeing’s gamble? c. Carry out your own sensitivity analysis and discuss the feasibility and the risk of the project. Grumman = (.8)/1+(1-.34)(1.756) => .370548783 Northrop = (.74)/1+(.66)(1.288) => .399982703 Lockheed = (.87)/1+(.66)(1.182) => .488731097 Average of first 3 = .419754194 Boeing = (.81)/1+(.66)(.018) => .800490177 .800490177 = .26( .419754194 ) + .74(BaCommercial) BaCommercial = .934262279 BeCommercial = .934262279 * [1+(.018)(.66)] Levered BeCommercial = .945361315 Capital CAPM = .0882 + .945361315 * .054 = .139252 => 13.9252 % Debt WACC = (234.5/271.5)*(9.73) + (37/271.5)*(9.31) = 9.6727 WACC: (E/V)*Re + (D/V)*Rd*(1-t) (14896.76/15168.26)* 13.9252 + (271.5/15,168.26)* 9.6727 *(1-.34) = 13.7901% WACC < IRR so… ACCEPT!!!!!!!...
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This note was uploaded on 02/10/2012 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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Boeing777+Assignment - nature of Boeing’s gamble? c....

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