The Boeing 7e7

EXECUTIVE SUMMARY

This report is commissioned to analyse the feasibility of the Boeing 7E7 project. In order to evaluate the project, the Weighted Average Cost of Capital (WACC) was calculated and compared against the Internal Rate of Return (IRR). The value of WACC obtained is 8.942%, while the value of IRR is given as 15.7%. The rule of thumb is to accept the investment if the value of WACC is less than IRR. Apart from the financial analysis, the encouraging and discouraging factors (internal and external) in deciding whether to proceed or abandon the project were also given adequate consideration. Hence, based on the financial analysis as well as taking into account the pros and cons of the project, we conclude that it is more favourable for Boeing to proceed with the 7E7 project.

TABLE OF CONTENT

ITEM PAGE

EXECUTIVE SUMMARY i

PART 1: BACKGROUND OF CASE STUDY 1

PART 2: FINANCIAL ANALYSIS 2

PART 3: CONSIDERATION OF THE OTHER FACTORS 6

PART 4: CONCLUSION 7

REFERENCES 8

APPENDIX 9

PART 1

BACKGROUND OF THE CASE STUDY

Boeing with its fierce rival, Airbus is the two giants in the large plane (100+ seats) commercial aircraft industry. In the past, Boeing dominated the industry with a range of successful aircraft offering, including the highly successful 777, which was introduced in 1994. However, the share of Boeing in this market segment declined gradually due to competition with Airbus and in 2002, Airbus recorded more commercial aircraft orders (233) as compared to Boeing’s 176 orders.

A massive commercial aircraft project was announced by Boeing in early 2003. The project received mixed responses from the analysts and rival alike, due to the current condition of the depressed market of aircraft and reduced profits caused by a combination of factors, among others; the threat of terrorism and global concern on the deadly illness, SARS. Nevertheless, Boeing’s Senior...