Boeing Company 7E7 Project Corporate Finance Case study

Remember to use these questions to help guide you to understanding the problem and the environment as you propose alternative strategies and solutions. Do not provide answers to these questions in a list format.

Guiding questions to help you identify the pertinent issues and potential strategies for Boeing:

  1. What is an appropriate hurdle rate that Boeing should use to evaluate the prospective returns from the 7E7?
    1. Which beta did you use? Why?
    2. When you used the CAPM, which risk premium and risk-free rate did you use? Why?
      1. Note that at the time of this case, the geometric average market excess return (above T-bills) was 6.4%
      2. The geometric average market excess return (above T-bonds) was 4.7%.
      3. The arithmetic average market excess return (above T-bills) was 8.4%
      4. The arithmetic average market excess return (above T-bonds) was 6.4%.
    3. Which capital structure weights did you use? Why?
  2. Based on your WACC, how attractive is the Boeing 7E7 project? How sensitive is the decision to various factors?
  3. Should Boeing board approve the 7E7?

Exhibits are attached below in spreadsheet format.

Please use the following format:

The case study has two parts. Exhibits, etc. should be included if necessary.

  1. Executive Summary (required for all assignments, not to exceed three double-spaced pages)
    1. Introduction: Here, you will provide general background information for the case and introduce the main issue. This should be a single, short paragraph. Use your own words, not words from the case author.
    2. Problem statement: Isolate the key issues from the case. When possible, quantify the problem (for example, “The Acme Company does not have sufficient capacity to meet the forecasted demand of 10 million units per year”.) This should be a few sentences at most combined into a paragraph.
    3. Environmental Analysis: Use up to two pages to succinctly describe the various issues that need to be considered. This is where you can summarize your analysis and incorporate the relative strengths and weaknesses. Discuss resources, market forces, competition, technology, etc.
    4. Alternative Strategies: As appropriate, outline the two or three possible approaches that a manager can take. There does not need to be an exhaustive and comprehensive analysis of each, but a recognition that there is rarely one solution to a problem. This is your opportunity to demonstrate clear and logical reasoning.
    5. Recommendations: Identify your selected strategy from the choices presented in section D. Here is where you should elaborate on the reasoning for your choice. Your strategy must be stated specifically and also be possible for the manager to implement.
  2. Exhibits, tables, financial analysis and formulas (when necessary): If your case write-up references new calculations or quantitative analysis, you should prepare formal exhibits, tables, financial analyses and worked out formulas. These should be prepared professionally (i.e. not hand-written), ordered logically, numbered and referenced in the executive summary.
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