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1) Boeing Corp. is considering creating the new aircraft, the 787--larger than 747 and larger than Airbus A380. Company's Renton WA Facility, where 747s are presently manufactured, would have to be expanded. Expansion costs are forecast to be $2.5B, incurred at t = 0. Also at time t = 0, before production begins, inventory will be raised by $1.855B. Suppose that this inventory is sold at the end of project at t = 2. First sales from operation of new plant will occur at the end of year 1 (t = 1). Boeing forecasts sales of 220 planes in each of 2 years. The plane will be sold for $130M each. The cost of manufacturing the plane is $115M. Annual overhead expenses are= $775M. Construction services are categorized as 15 year property. When plant is closed it will be sold for $1B. The company is in 34% marginal tax bracket. Boeing's cost of capital is 12%. Determine the initial cash flow for project?

MACRS Depreciation Rates

Year  10-Year  15-Year
 1     10.00%   5.00%
 2     18.00%   9.50%
 3     14.40%   8.55%

a) -$645M
b) -$1,885M
c) -$2,500M
d) -$4,355M
e) -$5,000M

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914397

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