In 2003, Boeing announced plans to build a new “super-efficient” commercial airplane called “7E7″ or “Dreamliner”. It was a “bet the farm” speculation Boeing, similar in size before the introduction of the 747 and 777 aircraft. Technological superiority of the new airframe, and the fact that it will enter the fast-growing segment of the market argue for project approval. On the other hand, the current market for commercial aircraft was depressed, reflecting the risk of terrorism, war and SARS, a contagious disease as a result of global travel warnings. Boeing board of directors must weigh these considerations in granting final approval to initiate a project goal for students is to evaluate the 7E7 project to combat the financial standards required return investors . cases gives the internal rate of return (IRR) for the 7E7 project under the base case and alternative projections. Students must evaluate the weighted average cost of capital (WACC) for Boeing commercial aircraft business segment in order to evaluate these IRR. in this analysis to identify students “key value drivers” and distinguish, on a qualitative basis, the key gambling Boeing does. The main goal of this case is the implementation of students’ skills in the assessment of the weighted average cost of capital and cost of capital. The need for students to evaluate segment WACC draws out their ability to criticize various estimates, beta and beta-lever handle formulas. Boeing competes in the commercial aviation and defense business, so as to obtain the appropriate WACC benchmark for the 7E7 project requires the allocation of the commercial component of the overall corporate aircraft WACC Boeing. The students involved in the concept of value additivity.
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by Robert F. Bruner, James Tompkins Source: Darden School of Business 25 pages. Publication Date: July 29, 2004. Prod. #: UV0281-PDF-ENG