INTRODUCTION Finance and Decision Making

INTERNATIONAL
FINANCE AND DECISION
MAKING

Table of Contents
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
Launching of 7E7 projects:....................................................................................................1
Question 2........................................................................................................................................2
A)............................................................................................................................................2
B)............................................................................................................................................2
C)............................................................................................................................................2
D)............................................................................................................................................2
E)............................................................................................................................................3
F).............................................................................................................................................4
G)............................................................................................................................................4
H)............................................................................................................................................4
I).............................................................................................................................................5
Question 3........................................................................................................................................5
a).............................................................................................................................................5
b).............................................................................................................................................6
C)............................................................................................................................................6
QUESTION 4...................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Finance is one of the most crucial thing in a business which is used by each organisation
for smoothly running their business operations. There are certain things which are used by the
firm for making business operations in a sustainable manner. This is the report which is linked
with information about 7E7 project which is planned by Boeing. By using capital appraisal tools,
Boeing uses 7E7 projects (Beugelsdijk and Frijns, 2010). Diverse tools and techniques are
implemented to elaborate financial performance and chances of future growth of Boeing.
Question 1
Launching of 7E7 projects:
Boeing was planning to launch 7E7 project. First, it did not launch new aircraft for a long
time. Emerging a new product could assist Boeing rebuilt commercial aircraft market back from
its topmost rival Airbus. It had 57 more commercial aircraft orders from Boeing. Second, main
aim of Boeing was to reduce the production cost and also to make product efficiently. Beside
this, Boeing 7E7 could likewise enhance long and short distance flexibility of planes to satiate
more consumers' requirements and to allay their concern about aging fleet of mid-range planes
after 9/11 attack. Apart from that, adopting the long term business cycle, air travels consistently
make great connection with GDP by an annual growing rate of 5.1%. Henceforth, this is worth
emerging the commercial airline business (Bayne and Woolcock, 2011).
At this time, there is no need to launch the 7E7 projects. Because, this is not the right
time for launching. Firstly, there are technological problems or issues that can led to higher risk
of failure and need vast amount of initial investment. Developing a plane with diverse
wingspans. This has been developed after the plane crash in 2001, which implements of
composite materials continue to carries risk. What is more, Iraq war, SARS, and international
terrorism emergence in international travel threats. The actual market demand was estimated to
be the worst during these years.
Question 2
A).
The calculated internal rate of return is relied on the this report as 15.66%, henceforth,
there is a need to have at least 15.7% required rate of return. If the net present value is nil then,
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the project is considered after caution. On the other hand, if net present value is higher than the
zero, then the project is required to be adopted by the firm.
B).
Capital-asset-pricing-model is implemented by using an individual scrutiny or portfolio.
This is determined that the existing market price securities and henceforth, forecast about the
expected return on the aggregate capital investments. This model renders a tool for identifying
risk and translate it into forecast of expected return on the equity. The most crucial thing for
using CAPM is to forecast the require rate of on an individual equity. But this is not quite simple
to estimate the required rate of return. Boeing forecasts that in the initial 20 years, they are
predicting to sell 2000-3000 units of 7E7 projects. After assessing all these information, this can
be rendered that it would sale at-least of 2000 planes. But after analysing all these information,
there is a need to adopt the weighted average cost of capital as this covers all the aspects which
are related to the all product. Henceforth, WACC is used to calculate the total cost. Boeing
comprised of two separate segments which is more stable defence concern and conversely
higher volatile commercial businesses ( Beugelsdijk and Frijns, 2010).
C).
As per the capital asset pricing method, the cost of Equity is calculated by using these formula.
Rf+Beta* Market risk premium. Hence, cost of equity= 1.05%+1.43*2.75%=4.98%.
During this case, 74 year equity market risk premium was estimated to be 2.75%. beta of
the company was calculated to be the 1.43, which is based on the Bloomberg forecast for the
firm. This beta reflects how the Boeing stock is much riskier than the market.
D).
Equity market risk premium is the return which is generated over the risk free rate of
return. This return compensate the investors for bearing more risk on the equity market than the
risk free rate of return (Elango and et. al., 2010). Henceforth, to calculate this, this consider the
expected rate of return and subtract the risk free rate as follows:
EMRP is calculated by using: Expected rate of return- risk free rate of return=(Dividend Yield+
Growth rate of dividends)-Rf=(2.74%+1.06%)-1.05%=2.75%, where dividend earn and growth
rate of dividends is obtained from financial ratio and data of the firm. Rf is the APY of 3-months
Treasury Bill.
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