Boeing announced the production of a new passenger aircraft in the wake of the Boeing 737...

 

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Boeing announced the production of a new passenger aircraft in the wake of the Boeing 737 MAX debacle. The new plane project was an enormous undertaking, and much of the preliminary work has already been done. Research and development began two and a half years earlier and cost about $5 billion. Production facilities and personnel training would require an additional $2 billion, and an additional $1.7 billion in working capital would begin in six years. The Exhibit 1 provides profit, depreciation, and capital expenditure projections for the project. Also, the financial analysis team has the following data for Boeing: Boeing's beta Boeing's market-value debt ratio 1.56 0.09 Boeing's new issue rate for long-term debt 4.75% Riskless return 3.75% Market risk premium 5.00% Boeing's marginal income tax rate 21% Please answer the following questions: 1. What are the after-tax cash flows for the project? 2. What are the cost of equity capital and the weighted average cost of capital (WACC) for Boeing? 3. What are the NPV, IRR, MIRR, payback period, and discounted payback period for Boeing's new plane? 4. Construct an NPV profile like Figure 9-3 in the textbook, including titles for the axes and the graph's name. 5. Based on your analysis in #2 and #3, would you undertake the plane project? Why? + Year HASTAGNOODHESH852238 1 4 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 24 26 F27 28 29 30 31 32 33 34 After-Tax Profita -597.30 -947.76 -895.22 -636.74 -159.34 958.62 1,718.14 1,503.46 1,665.46 1,670.49 1,553.76 1,698.99 1,981.75 1,709.71 950.83 1,771.61 1,958.48 1,691.19 1,208.64 1,954.39 2,366.03 2,051.46 1,920.65 2,244.05 2,313.63 2,384.08 2,456.65 2,531.39 2,611.89 2,699.26 2,785.50 2,869.63 2,956.28 3,053.65 (Dollars in millions) Depreciation 40.00 96.00 116.40 124.76 112.28 101.06 90.95 82.72 77.75 75.63 75.00 75.00 99.46 121.48 116.83 112.65 100.20 129.20 96.99 76.84 65.81 61.68 57.96 54.61 52.83 52.83 52.83 52.83 47.52 35.28 28.36 28.36 28.36 16.05 Capital Expenditures 400.00 600.00 300.00 200.00 182.91 1,741.42 2.12 -327.88 67.16 -75.21 -88.04 56.73 491.21 32.22 450.88 399.53 -114.91 178.41 627.70 144.27 100.51 -463.32 -234.57 193.92 80.68 83.10 85.59 88.16 90.80 93.53 96.33 99.22 102.20 105.26 a. Includes expenditures for research and development, and personnel training. b. Includes changes in working capital. Negative values are caused by a reduction in working capital. Boeing announced the production of a new passenger aircraft in the wake of the Boeing 737 MAX debacle. The new plane project was an enormous undertaking, and much of the preliminary work has already been done. Research and development began two and a half years earlier and cost about $5 billion. Production facilities and personnel training would require an additional $2 billion, and an additional $1.7 billion in working capital would begin in six years. The Exhibit 1 provides profit, depreciation, and capital expenditure projections for the project. Also, the financial analysis team has the following data for Boeing: Boeing's beta Boeing's market-value debt ratio 1.56 0.09 Boeing's new issue rate for long-term debt 4.75% Riskless return 3.75% Market risk premium 5.00% Boeing's marginal income tax rate 21% Please answer the following questions: 1. What are the after-tax cash flows for the project? 2. What are the cost of equity capital and the weighted average cost of capital (WACC) for Boeing? 3. What are the NPV, IRR, MIRR, payback period, and discounted payback period for Boeing's new plane? 4. Construct an NPV profile like Figure 9-3 in the textbook, including titles for the axes and the graph's name. 5. Based on your analysis in #2 and #3, would you undertake the plane project? Why? + Year HASTAGNOODHESH852238 1 4 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 24 26 F27 28 29 30 31 32 33 34 After-Tax Profita -597.30 -947.76 -895.22 -636.74 -159.34 958.62 1,718.14 1,503.46 1,665.46 1,670.49 1,553.76 1,698.99 1,981.75 1,709.71 950.83 1,771.61 1,958.48 1,691.19 1,208.64 1,954.39 2,366.03 2,051.46 1,920.65 2,244.05 2,313.63 2,384.08 2,456.65 2,531.39 2,611.89 2,699.26 2,785.50 2,869.63 2,956.28 3,053.65 (Dollars in millions) Depreciation 40.00 96.00 116.40 124.76 112.28 101.06 90.95 82.72 77.75 75.63 75.00 75.00 99.46 121.48 116.83 112.65 100.20 129.20 96.99 76.84 65.81 61.68 57.96 54.61 52.83 52.83 52.83 52.83 47.52 35.28 28.36 28.36 28.36 16.05 Capital Expenditures 400.00 600.00 300.00 200.00 182.91 1,741.42 2.12 -327.88 67.16 -75.21 -88.04 56.73 491.21 32.22 450.88 399.53 -114.91 178.41 627.70 144.27 100.51 -463.32 -234.57 193.92 80.68 83.10 85.59 88.16 90.80 93.53 96.33 99.22 102.20 105.26 a. Includes expenditures for research and development, and personnel training. b. Includes changes in working capital. Negative values are caused by a reduction in working capital.

Answer rating: 100% (QA)

To calculate the aftertax cash flows we need to consider the aftertax profit depreciation capital ex... View the full answer