Financial Analysis

Executive Summary

This report focuses on a detailed financial analysis on the Boeing 7E7 project. The analysis aims to help the management determine the financial soundness of this project and make informed decisions. The analysis is based on the financial information of the 7E7 project as well as industrial research and reports. In short, the analysis views Boeing's newly purposed 7E7 airplane positively and acknowledges its potential as a very successful airplane model.

The conclusion is reached based on a thorough examination of risk and benefit factors associated with the Boeing 7E7 project. Should the new project be implemented as the company promises, we believe the new 7E7 aircraft will incur lower operating costs given its increased cargo space and increased fuel economy. In addition, cost of capital of Boeing's 7E7 project falls below investors' required rate of return on the project, greatly increasing the likelihood of an approval by the board of directors of the company. Boeing's proposed 7E7 aircraft features lighter body, superior fuel efficiency, better flight flexibility, and faster delivery; thus, the new 7E7 model can drastically increase the competitiveness of Boeing and help the Company fight back lost market shares from Airbus, its biggest competitor in the airplane manufacturing industry.

The new idea, however, also increases the mechanical complexity of manufacturing and adds uncertainty to the success of the project. Therefore, this project is subject to a more comprehensive sensitive analysis, which examines the feasibility of the project under different scenarios of the project's financial performance.

Company Overview

Boeing is a U.S.-based international designer and manufacturer of aircrafts and aerospace products such as satellites and missile defense systems. In 1916, William Boeing and navy engineer Conrad Westervelt founded the Pacific Aero Products Company in Seattle, and they build the B&W seaplane. The company was renamed to the Boeing Airplane Company one year later. The company started out as an aircraft manufacturer for Navy training and patrol and has since grown into the second largest commercial airplane manufacturers and second largest defense contractor. Boeing's business is comprised of three segments: Commercial Airplanes, Defense, Space & Security and Boeing Capital. The key factor for Boeing's growth in its commercial segment lies in the launch and delivery of new aircrafts that meet or exceed clients' performance and reliability standards. The company has historically strived for the production of jets that are quicker, faster and more efficient in operations (Boeing 787 Dreamliner, 2013).

Boeing's Challenge

In the community of commercial aircraft manufacturers, Boeing and Airbus, the world largest airplanes manufacturer, are the only companies with the capabilities to build large and technically advanced airplanes. Each of the two companies focuses on different features. The tough global airline market following the September 11, 2001 attacks and increased petroleum prices pushed airlines to seek more efficient airplanes. As a result, in 2003, Boeing announced its plan to develop a super-efficient aircraft named 7E7. Given the large upfront