The Boeing 777 Case Solution

Introduction:

The Boeing Company is the world’s leading manufacturing company that designs the industrial aircraft products for commercial airline industry and defense industry. In October 1990, Boeing CEO named Frank Shrontz was going to launch the new product for the aircraft industry entitled Boeing 777. It was the medium large product that carried the passenger from 350 to 390 over the distance of 14,000 kilometers(Dena Gollish, 2019).

Due to the flexible nature of Boeing 777, Frank received order form the United Airlines with the expected delivery date of May 1998. Apart from its advanced technology, Boeing 777 launch provided too many potential divergent strategic advantages to the airline industry such as it would help to fill the gap in the Boeing’s Product line for passenger aircraft, which were capable to load passenger ranges from 100 to 500.

Boeing’s ROE from Boeing 777 Project:

Return on Equity (ROE) is used to detect that how much profit the company will get after launching the new project in the market. As mentioned in the case that the maximization of ROE is the main objective of Boeing CEO, Frank Shrontz. Return on equity has been calculated by dividing the total income of the company from its total equity for the purpose of analyzing that how much return their shareholders have earned in this financial period.

It is expected that the new project, Boeing 777 will contribute to enhance the Net Income of the company,which will ultimately increase the return on equity. This will happen due to the growth in revenues, which will be generated by this project, as a result of which, revenues will surpass the costs of the project, which will higher the Boeing’s opportunity cost of capital by this investment.

More of it, Boeing 777 will increase the shareholder’s wealth, because it can be seen in in Exhibit six of the case that the net present value (NPV) of this project is in positive due to the positive cash flows, as a result of which, the greater internal rate of return (IRR) has been perceived against the potential cost of capital.

If it has been perceived that the forecasted Boeing’s revenues and profits that have been provided in Exhibit 6 of the case is exact one then the Boeing 777 project will give the IRR of 18.9 percent, after delivering 1000 plans over the 10 years at the listed price of 130 million dollars per plane, which definitely increases the shareholders wealth if the applicable potential cost of capital would be less than the respected IRR………………

 

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