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Boeing 7E7
New Project Assessment
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2/23/2016

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Boeing, nearly after a decade, is planning to introduce new commercial aircraft 7E7 which claims to reduce fuel cost
by 20% and will be a unique aircraft in midsize segment that will have capability to cover short distance as well
non-stop long distance journey thereby reducing traveling time as well as traveling cost. Besides the product is a
need of hour for Boeing so as to survive stiff competition from Airbus and is the only hope for survival. Further by
ensuring that the development and manufacturing cost are kept low by deploying decades of engineering expertise to
make this product a success, it is recommended that the Board should accept this project. The objective of the report
is to answer the following questions: (A) What is the appropriate require rate of return to evaluate IRR from 7E7;
(B) How attractive is project 7E7 against WACC and what are the risk factors associated with the project which
needs to be monitored closely so as to make this project viable. (C) What sensitivity analysis reveals about the
nature of project and (D) Why should Board of Directors approve 7E7.
Required Rate of Return (WACC) and comparison to project IRR

Project attractiveness and Risk Factors

Sensitivity Analysis

Final Conclusion

Given the return from project, risk identified and assessed and based on sensitivity analysis, it is recommended that

the Board should approve 7E7. The fleet will provide Boeing a competitive edge over Airbus and hence help to

capture market share and improve profitability. IRR at 15.7% over and above the project WACC at 6.55% will

generate substantial wealth for the shareholders and hence will be value accretive. The project will be in much

demand among aircraft buyers / lease owners as it will help reduce operating cost and time of travel.

Airbus, being Boeing’s chief rival, is expected to introduce new A380 in the market which will compete closely

with 7E7. Hence it will be critical for Boeing 7E7 to deliver on expectation of lower fuel requirement, ability to

connect non-stop longer distance and other innovative features which will stand the product apart in the market and

help to capture and retain market share.

Lastly, it will be important for the Team to contain development cost, but more importantly the cost of goods sold in

% of sales terms. Besides, it will important for the business development team to secure at least 2,500 units order in

the first 20 years of delivery and 5% price premium so as to deliver 15.7% IRR.
Appendix

1. Boeing Commercial Equity Beta

2. Exhibit 8: Projected Cash Flows, IRR and NPV