The enclosed report deals with Boeing company

International Finance &
Decision Making

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
Boeing contemplating to launch the project named 7E7........................................................1
Question 2........................................................................................................................................2
A. Appropriate required rate of return against IRR from Boeing 7E7...................................2
B and G. Appropriate reason for not using CAPM model for estimating cost of capital......2
C. Usage of CAPM to estimate cost of equity and reason for using specific beta and risk-free
rate of return...........................................................................................................................3
D. Usage of risk free rate and risk premium..........................................................................3
E. Cost of debt of company....................................................................................................4
F. Explain debt and its relation to commercial risk................................................................4
H. What is appropriate to calculate whether weighted average of all debt or a weighted
average of long-term debt with maturities that match the length of the project.....................4
I. Critically discussed use of capital structure weights ..........................................................5
Question 3........................................................................................................................................5
A. Evaluating the project of company....................................................................................5
B. Outline circumstances why the project is economically viable.........................................6
C. Sensitivity analysis of the project......................................................................................6
Question 4........................................................................................................................................7
Successful approval of project and value creation for Boeing organisation..........................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
APPENDIX....................................................................................................................................10

INTRODUCTION
Project evaluation is essential aspect for the company as investment should be made in
profitable project so that profits may be achieved by it. The enclosed report deals with Boeing
company which is operating in airline industry. It is planning to launch a new project named as
7E7. For this, it has to rely on investment appraisal techniques which will provide effective
results whether to invest in the project or not. Organisation need to take better decision for
evaluating the credibility and viability of the project so that it may earn better profits with much
ease. This will provide with desired results and customers' will be satisfied in the best possible
way.
Question 1
Boeing contemplating to launch the project named 7E7
Boeing organisation contemplates to launch the project so that it may be able to garner
more profits which had deteriorated in the past. The project requires effective and better
decision-making as wrong decisions may be hazardous to company and it will lose the market
share. The aircraft industry in which Boeing operates is highly competitive as Airbus is the chief
rival to it. As such, better decisions should be made so that 7E7 project may be successfully
attained with much ease (Avdjiev, McCauley and Shin, 2016). The new project named as 7E7 is
made clearer by Boeing that it will be able to travel much faster than supersonic air planes that
were implemented and created in the past.
Now coming to today's scenario, it is not good time for company to launch this project as
terrorism is at its peak and people are afraid about it. In addition to this, several countries are
facing economic recession and due to this, customers' prefer to travel in economic class. As a
result, it is not the best time to launch the project by organisation as estimated profits will not be
generated significantly (UK Aviation market).
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Question 2
A. Appropriate required rate of return against IRR from Boeing 7E7
WACC (Weighted Average Cost of Capital) is a method which is useful for the company.
It is the rate that organisation is expected to pay on an average to all holders of shares or any
other securities. Current WACC is 2.76% which is very low and it may be conveyed that Boeing
has effective control on WACC. The calculation of WACC is simple and it is computed by cost
of equity and cost of debt and then consecutively weights are calculated to find out WACC. The
weights so calculated are then multiplied to cost of sources of finance which are mentioned
above in the table. From this, cost of debt corporate tax is deducted and in then finally weighted
average cost of capital is computed (McKenzie and et.al, 2014). This method is helpful as
present value of cash flows are computed from it and is useful method for market analysts as
well.
B and G. Appropriate reason for not using CAPM model for estimating cost of capital
CAPM model is not suitable as it does not use cost of capital as in it calculates only items
which are related to cost related to equity. In simple words, this model ignores cost of debt which
is vital for correct computation (Biswas, 2015). As a result, it is justified that CAPM model is not
reliable as cost of debt is not used. In contrary to this, weighted average cost of capital should be
used by the company as it calculates weight cost of debt and equity and then corporate tax is
deducted from the same to generate desired results. As a result, CAPM model is not effective
method to calculate cost of capital.
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