International Financial & Decision Making Doc
Added on 2020-09-08
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FinancePolitical Science
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International financial &decision making
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1QUESTION 1...................................................................................................................................1Reasons fort Boeing contemplating for launch of 7E7 project..............................................1QUESTION 2...................................................................................................................................1A. Determining the appropriate rate of return for the prospective IRR from Boeing 7E7project.....................................................................................................................................1B. To determine the cost of capital without using capital assets pricing model....................2C. Implicating the use of capital assets pricing model to analyse cost of equity with risk freerate and beta rate.....................................................................................................................2D. Application of Capital assets pricing model on risk free rate and risk- premium.............3E. Analysing the cost of debt for Boeing...............................................................................3F. Relationship of debt with commercial and defence risk....................................................3G. Analysing the use of CAPM in terms of determining the cost of debts............................4H. To analyse the length of project the estimation belongs to weighted average debt and longterms debts..............................................................................................................................4I. Determine the capital structure weights to be use...............................................................4QUESTION 3...................................................................................................................................5A. Judgement relevant with WACC and the attractiveness of the project Boeing 7E7.........5B. Economically attractiveness of the project under several conditions................................5C. Sensitivity analysis in relation with the Boeing's gamble.................................................6QUESTION 4...................................................................................................................................6Valuable the project 7E7 for the board...................................................................................6CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................8APPENDIX......................................................................................................................................9
INTRODUCTIONFinancial decision is the prime requirement of the business which will be fruitful for thebusiness in terms of making the adequate operational activities in the long run. In the presentreport there has been discussion based on Boeing's 7E7 project. Therefore, this will be fruitfulfor the manages in terms of having the adequate financial execution and the suggests relevantwith the cost of capital, debts and equity. The advices will be presented to the managers as tomake proper increment in the operations of business as well as the launch of these aircraft projectto compete with competitors like Airbus.QUESTION 1Reasons fort Boeing contemplating for launch of 7E7 projectIn consideration with the increment in the competitors and technology there is need tohave an up gradation in the operations and designs of the aircraft. Boeing has planned to launchthe 7E7 project which will be consists of various new features and design. In respect to suchplanning they decided to launch an aircraft with having two different configurations such asreducing the cabin altitude as well as increasing the cabin's Humidity. On the other side, whileconsidering the increment in the terrorist activities there will be huge risks which are relevantwith the problems which are being faced by an aviation industry and need to have strong securitysystems (Dutta and Nezlobin, 2017). Other than this, the main obstacle in the operations of thebusiness is presented by rivalries such as Airbus is giving the tough competition to Boeing.Therefore, it can be said that this is not a time to have a launch of this project in spite of this,they must make strong plans and have increment in the technology.QUESTION 2A. Determining the appropriate rate of return for the prospective IRR from Boeing 7E7 project1
In order to analyse the adequate rate of return which is aimed at reducing the costs ofproduction, there has been measurement of WACC is presented. The current WACC is 2.76%which is comparatively lower than the 3.39% of WACC which indicates that the Cost of capitalis adequate (Creedy and Gemmell, 2017). Therefore, it includes the measurements for theelements such as debt amount for 4328, equity amount at 7696 etc. the rates of various taxeswere also been mentioned such as cost of debt before tax is 8%, cost of equity art 3% and thecorporate tax of 35%. Therefore, the weighted debts is for 36% and weighted equity is for 64%were measured.B. To determine the cost of capital without using capital assets pricing modelIn consideration with determining the cost of capital there has been implementation orinfluences of various components which are useful in measuring it. Therefore, in this projectthere is not any use of such components so it will not be possible in terms of measuring the costof capital. There will not be implication of CAPM in terms of computing the cost of capital whileWACC will be useful as it includes the same elements such as Corporate tax cost of debts etc.thus, it can be said that with using the CAPM this not possible to analyse the cost of capital(Biørn, 2017).C. Implicating the use of capital assets pricing model to analyse cost of equity with risk free rateand beta rateInterpretation: In terms of identifying the cost of equity the capital asset pricing methodis the very useful method. Therefore, due to implications of this method the cost equity wasmeasured at 3% which is adequate and appropriate. Thus, it indicates that to launch this projectthe firm will require less capital as well as they have the risk free rate for 0.85%. There has beenmeasurement for the beta on the basis of 60 days of share trading which are highly volatile innature so the 3-6 month of the period is to be considered while measuring it (Levi and Welch,2017).2
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