(https://www.thecasesolutions.

com)

The Boeing 7E7 Harvard Case Solution & Analysis

Home (https://www.thecasesolutions.com/) >> Harvard Case Study Analysis Solutions (https://www.thecasesolutions.com/harvard-case-study-analysis-solutions) >>
The Boeing 7E7

 Facebook
(http:// 28614&t=The%20Boeing%207E7)
(http://www facebook com/sharer php?u=https%3A%2F%2Fwww thecasesolutions com%2Fthe-boeing-7e7-2-
u=http
boeing
 Twitter
7e7-2-
28614& boeing-7e7-2-28614)
(http://twitter com/share?text=The%20Boeing%207E7&url=https%3A%2F%2Fwww thecasesolutions com%2Fthe-


Gmail
(http:// 7e7-2-28614&ui=2&tf=1)
(https://mail google com/mail/u/0/?
view=cm&fs=1&su=The%20Boeing%207E7&body=https%3A%2F%2Fwww thecasesolutions com%2Fthe-boeing-
text=Th
boeing
 reddit
7e7-2- 28614&title=The%20Boeing%207E7)
(http://www reddit com/submit?url=https%3A%2F%2Fwww thecasesolutions com%2Fthe-boeing-7e7-2-
28614)
 LinkedIn

(https:/ boeing-7e7-2-28614&title=The%20Boeing%207E7)
(http://www linkedin com/shareArticle?mini=true&url=https%3A%2F%2Fwww thecasesolutions com%2Fthe-
view=c
boeing
7e7-2-
28614&
PROBLEM STATEMENT:


In the case, Bair was concerned about the board of directors and members that now it is the right time to design and launch a new
(http://
url=htt
commercial aircraft line the 7E7, because the majority of the directors were uncertain about the situation after the incident of September
boeing
11, it seriously hit the profits for the whole travel industry. Launching the new airline 7E7 in risky and uncertain circumstances times could
7e7-2-
28614&
lead to a disaster in the commercial-aircraft industry. On the other hand, the investment could be huge for the company and it could take
years to operate again in profits.

(http://
mini=tr
boeing
7e7-2-
28614&

(https://www.thecasesolutions.com/wp-
content/uploads/2015/04/boeing-7e7-case-
solution.png)
boeing 7e7 case solution

On the brighter side, the new project 7E7 would have lower operating costs as compare to other aircraft due to increased fuel economy and
increased cargo space with a new engine design. If the project proven successful in term of design, the most fuel efficient 7E7 would be
constructed primarily with another efficient material and it would also be versatile and beneficial for both short and long international
flight routes, as the management of the company believes that if they do not take risks today, they will be taken over by the competitor
Airbus and if the company left behind in terms of innovation, they will also their market to Airbus. In other words, if Boeing wants to
compete in the market, they must take on some risk and develop the 7E7 line.
Chat
Question No. 1: What is an appropriate required rate of return against which to evaluate prospective IRRs from the Boeing 7E7?
(https://getbutton.io/?utm_campaign=multy_widget&utm_medium=widget&utm_source=www.thecasesolutions.com)
 Answer:

From the case scenario (https://www.thecasesolutions.com/corporate-governance-the-jack-wright-series-13-not-for-profit-organization-

11251), the already computed IRR had been 15.66%, hence the required rate of return should be at least, 15.7% in order to remain in the no
profit and no loss situation. There are 3 possible scenarios and cases involving NPV (Lin, 2000, 36):
NPV > 0 or positive NPV- the project should be undertaken in the majority of cases (of course, depending on the market and the
availability of alternatives, we may choose which one to pursue and if to pursue it)
NPV = 0 - in this case we don't lose anything, but we don't gain anything either. With a greater volatility and variability of the market, it's
quite easy to go from NPV = 0 i.e. from break-even situation to the negative NPV, hence, should tackle with a great caution.

(http://
NPV< 0 or negative NPV - pretty obvious answer - no, don't pursue it, unless the goal is not the monetary gain, because sometimes the
u=http
objectives are to gain market share for a future potential gain.
boeing
7e7-2-
28614&
Question No. 2: Use the capital asset pricing model to estimate the cost of equity.

Answer:

(http://
text=Th
According to CAPM,(1958, 261) Rate = Rf+beta* (Rf-Rm) Cost of Equity was equal to 11.10% (Modigliani, 1958, 297).
boeing
Beta was calculated with the help of the figures given in the question, which essentially shows how the Boeing's stock fluctuates with
7e7-2-
28614)
respect to S&P Index,
EMRP is the Equity (https://www.thecasesolutions.com/prospective-capital-flows-and-capital-movements-us-dollar-versus-euro-4425)

(https:/
Market Risk Premium which is discussed in the next question.
view=c
boeing
Question No. 3: Which equity market risk premium (EMRP) did you use? Why?
7e7-2-
28614&
Answer:

(http://
Equity Market Risk Premium (EMRP) is defined as the return over from that of a company's stock provides over a risk-free rate. This
url=htt
prevents the investor from taking high risk of the investment in the equity.
boeing
7e7-2-
28614&
Question No. 4: What Beta did you use and how did you derive it?

Answer:

(http://
mini=tr
After observing the financial statements and other relevant data of the company, we can find the already calculated beta there, which is
boeing
1.43. Beta is obtained from the financial reports about the company, which shows the relationship between the company’s stock and the
7e7-2-
28614&
S&P Index.

Question No. 5: Which risk-free rate did you use? Why?

Answer:

Risk-free rate of return (Rf) = return on a 30-year treasury bonds = 4.56% (Malcolm Kemp, Market Consistency, chapter 5).
Using a treasury bond is a common practice and used a technique for evaluating risk-free rate, because it's backed-up by the US
government, which almost carries no risk.

Question No. 6: Which capital-structure weights did you use? Why?

Answer:

We can use different capital structure, i.e. full equity, full debt, equity plus debt, etc, in this case, since there were no interest cost
mentioned in the financial statements so we can use the original capital structure, but we assumed that only equity financing
(https://www.thecasesolutions.com/open-systems-and-the-european-mainframe-computer-industry-in-1990-70595) doesn’t seem a good
option, so we have used the debt over equity ratio of 52.5%c debt to equity ratio, given in the case. Based on this assumption, WACC
(Miles, 1980, 719) effectively equals the return required by the company = 8.51%...................................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case
solution.

(https://getbutton.io/?utm_campaign=multy_widget&utm_medium=widget&utm_source=www.thecasesolutions.com)
 Related Case Solutions & Analyses:

What is Your Sula Vineyards John and Early-Stage Center for Differences at
Strategy Andrea Rice: Business Integration of Work: Erica (B)
 (https://www.thecasesolutions.com/sula-
(http:// vineyards-6188) (https://www.thecasesolutions.com/john-
(https://www.thecasesolutions.com/what- (https://www.thecasesolutions.com/early-
(https://www.thecasesolutions.com/center-
(https://www.thecasesolut
u=http
is-your- and-andrea- stage-business- for-integration- at-work-erica-b-
boeing
strategy-4172)
7e7-2- rice- vignettes-6963) of-medicine- 6979)
28614& entrepreneurship- and-innovative-
and-life-6955) technology-
 cimit-6971)
(http://
Differences at
text=Th Michelle Coca-Cola Chile C. R. Smith and
boeing
Work: Will (A) Levene (A) Foundation the Birth of
7e7-2-
(https://www.thecasesolutions.com/differences-
28614) (https://www.thecasesolutions.com/michelle-
(https://www.thecasesolutions.com/coca-
(https://www.thecasesolutions.com/c-
← Previous Post (https://www.thecasesolutions.com/exploring-category-benefits-for-brand-building-kaya-and-the-beauty-care-market-2-28612)
at-work-will-a- levene-a-8827) cola-chile- r-smith-and-
6987)
 foundation- the-birth-of-
Next Post→ (https://www.thecasesolutions.com/the-blackstone-groups-ipo-2-28616)
(https:/ 9073) american-
view=c airlines-9081)
boeingSocial Share
7e7-2- Share on Facebook (http://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fwww.thecasesolutions.com%2Fthe-boeing-7e7-2-28614)
28614&
Tweet (https://twitter.com/share?url=https%3A%2F%2Fwww.thecasesolutions.com%2Fthe-boeing-7e7-2-28614)

 Hire us for Originally Written Case Solution/ Analysis

(http://
url=htt
boeing
7e7-2-
28614& Buy Now

(https://www.thecasesolutions.com/signup)

(http://
mini=tr
boeing
Like Us and Get Updates:
7e7-2-
28614&
Harvard Case Solutions (https://www.facebook.com/thecasesolutions/)

Search Case Solutions

Search

Categories

Accounting Case Solutions (https://www.thecasesolutions.com/accounting-case-solutions)

Auditing Case Studies (https://www.thecasesolutions.com/auditing-case-studies)

Blog (https://www.thecasesolutions.com/blog)

Business Case Studies (https://www.thecasesolutions.com/business-case-solutions)

Economics Case Solutions (https://www.thecasesolutions.com/economics-case-solutions)

Ethics (https://www.thecasesolutions.com/ethics-case-solutions)

Finance Case Studies Analysis (https://www.thecasesolutions.com/finance-case-studies-analysis)

Harvard Case Study Analysis Solutions (https://www.thecasesolutions.com/harvard-case-study-analysis-solutions)

Human Resource Cases (https://www.thecasesolutions.com/human-resource-cases)

(https://getbutton.io/?utm_campaign=multy_widget&utm_medium=widget&utm_source=www.thecasesolutions.com)
 Ivey Case Solutions (https://www.thecasesolutions.com/ivey-case-solutions)

Management Case Studies (https://www.thecasesolutions.com/management-case-studies)

Marketing HBS Case Solutions (https://www.thecasesolutions.com/marketing-hbs-case-solutions)

Operations Management Case Studies (https://www.thecasesolutions.com/operations-management-case-studies)

Supply Chain Management Cases (https://www.thecasesolutions.com/supply-chain-management-cases-solutions)

Taxation Case Studies (https://www.thecasesolutions.com/taxation-case-studies)


More From Harvard Case Study Analysis Solutions
(http://
u=http
Boston Innovation District Turns Two (https://www.thecasesolutions.com/boston-innovation-district-turns-two-926)
boeing
7e7-2-
Dental Hygiene&Healthresearch (https://www.thecasesolutions.com/dental-hygienehealthresearch-150958)
28614&
Challenges in Renal Care (https://www.thecasesolutions.com/challenges-in-renal-care-10768)

(http://
Compaq Computer: Focus Groups (https://www.thecasesolutions.com/compaq-computer-focus-groups-15124)
text=Th
boeing
Corning Incorporated (https://www.thecasesolutions.com/corning-incorporated-150531)
7e7-2-
28614)
Clear Eyes Cataracts Clinic (https://www.thecasesolutions.com/clear-eyes-cataracts-clinic-2-177264)

Target Corporation: Maintaining Relevance in the 21st Century Gaming Market (https://www.thecasesolutions.com/target-corporation-maintaining-
relevance-in-the-21st-century-gaming-market-3966)
(https:/
view=c
boeing
Contact us:
7e7-2-
28614&

Email: order@thecasesolutions.com
(http://
url=htt
WhatsApp:
boeing
Terms of Service (https://www.thecasesolutions.com/terms-of-service)
7e7-2-
28614&
Refund Policy (https://www.thecasesolutions.com/refund-policy)
Privacy Policy (https://www.thecasesolutions.com/privacy-policy)

(http://
Check Order Status (https://www.thecasesolutions.com/order-status)
mini=tr
boeing
7e7-2-
28614&

Search

(https://getbutton.io/?utm_campaign=multy_widget&utm_medium=widget&utm_source=www.thecasesolutions.com)
 How Does it Work?


(http://
u=http
boeing
7e7-2-
28614&


(http://
text=Th
boeing
7e7-2-
28614)


(https:/
view=c
boeing
7e7-2-
28614&
Why
 TheCaseSolutions.com?
(http://
url=htt
- Inhouse team of MBAs and CFAs (not reliant on freelancers)
boeing
7e7-2-
28614&
- Biggest academic writing team on internet (220+ MBAs/ CFAs)

- Affordable prices
(http://
mini=tr
- Religiously meeting the deadlines
boeing
7e7-2-
28614&
- Strong checks and systems in place

- Competent agents on live chat (best in the industry)

- Absolutely no plagiarism

Sitemap (https://www.thecasesolutions.com/sitemap)

We are the Number 1 Case Study Solution Provider In the Case Study Help Niche

(https://getbutton.io/?utm_campaign=multy_widget&utm_medium=widget&utm_source=www.thecasesolutions.com)