In 2003, the Boeing Company announced plans to build a new aircraft…

QuestionAnswered step-by-stepIn 2003, the Boeing Company announced plans to build a new aircraft…In 2003, the Boeing Company announced plans to build a new aircraft model called the 7E7. The task in this case is to weigh the alternative IRRs for this project against investors required rates of return. As a result of this analysis, you should identify the value drivers and distinguish the specific gambles that Boeing is making.1. What is an appropriate required rate of return against which to evaluate theprospective IRRs from the Boeing 7E7? Which beta did you use? Why? When you used the CAPM, which risk premium and risk-free rate did youuse? Why? Which capital structure weights did you use? Why? 2. Judged against your WACC, how attractive is the Boeing 7E7 project? Under what circumstances is this project economically attractive? What does a sensitivity analysis (either the analysis presented in the caseor another that you have done on your own) reveal about the nature ofBoeing’s gamble on the 7E7? 3. Should Boeing have launched the 7E7 in 2003? Boeing Delivery Schedule             DC-8 DC-9 DC-10 MD-11 MD-80 MD-90 TotalYear 707 717 727 737 747 757 767 777 Deliveries1958 8                            8 1959 77                21            98 1960 91                91            182 1961 80                42            122 1962 68                22            90 1963 34    6            19            59 1964 38    95            20            153 1965 61    111            31  5          208 1966 83    135            32  69          319 1967 118    155  4          41  153          471 1968 111    160  105          102  202          680 1969 59    114  114  4        85  122          498 1970 19    55  37  92        33  51          287 1971 10    33  29  69        13  46  13        213 1972 4    41  22  30        4  32  52        185 1973 11    92  23  30          29  57        242 1974 21    91  55  22          48  47        284 1975 7    91  51  21          42  43        255 1976 9    61  41  27          50  19        207 1977 8    67  25  20          22  14        156 1978 13    118  40  32          22  18        243 1979 6    136  77  67          39  35        360 1980 3    131  92  73          18  41    5    363 1981 2    94  108  53          16  25    61    359 1982 8    26  95  26  2 20     10  11    34    232 1983 8    11  82  22  25 55       12    51    266 1984 8    8  67  16  18 29       10    44    200 1985 3      115  24  36 25       11    71    285 1986 4      141  35  35 27       17    85    344 1987 9      161  23  40 37       10    94    374 1988       165  24  48 53       10    120    420 1989 5      146  45  51 37       1    117    402 1990 4      174  70  77 60         3  139    527 1991 14      215  64  80 62         31  140    606 1992 5      218  61  99 63         42  84    572 1993       152  56  71 51         36  43    409 1994 1      121  40  69 41         17  23    312 1995       89  25  43 37 13        18  18  13  256 1996       76  26  42 43 32        15  12  25  271 1997       135  39  46 42 59        12  16  26  375 1998       281  53  54 47 74        12  8  34  563 1999   12    320  47  67 44 83        8  26  13  620 2000   32    281  25  45 44 55        4    5  491 2001   49    299  31  45 40 61        2      527 2002   20    223  27  29 35 47              381 2003   8    104  14  12 21 25              184   1010 121 1831 4483 1333 1034 913 449 556 976 446 200 1191 116 14659          Total: 1982-2001 993 857                                                 707 717 727 737 747 757 767 777                EXHIBIT 8 Forecast of Boeing 7E7 Free Cash Flows ($ in millions)                                                                                                                                                                                                                 Assumptions                                                                                                            Initial price of 7E7         $136.95                                                                                                  Initial price of 7E7 Stretch       $170.87                                                                                                  Cost of goods sold (% of sales)       80%                                                                                                  Working-capital requirement (WCR) as a % of sales     6.7%                                                                                                  General, selling, and administrative (GS&A) as a % of sales   8%                                                                                                  R&D expense (% of sales)       2.3% (exluding 2004-2007)                                                                                              Capital expenditure (% of sales)       0.16% (excluding 2004-2007)                                                                                              Development costs (2004-2009)       $8,000.00                                                                                                  Total number of planes yrs 1-20       2500                                                                                                  Total number of planes yrs 20-30       Same as year 20                                                                                                Inflation           2%                                                                                                  Marginal effective tax rate         35%                                                                                                                                                                                                                 % Deliveries           1.19% 4.32% 2.54% 3.30% 3.35% 4.16% 5.46% 4.76% 7.41% 7.68% 8.76% 6.59% 5.95% 4.32% 4.59% 4.76% 5.46% 6.00% 4.81% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59%                                      Project year     0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33                                      Delivery year           1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30                                      Revenues     2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037                                      Cumulative planes delivered         30 138 202 284 368 472 608 727 912 1104 1323 1488 1637 1745 1860 1979 2115 2265 2385 2500 2615 2730 2845 2960 3075 3190 3305 3420 3535 3650                                      Total number of planes delivered         30 108 64 82 84 104 136 119 185 192 219 165 149 108 115 119 136 150 120 115 115 115 115 115 115 115 115 115 115 115                                        7E7 planes           30 108 51 41 42 52 68 60 93 96 110 83 75 54 58 60 68 75 60 58 58 58 58 58 58 58 58 58 58 58                                        7E7 Stretch planes         0 0 13 41 42 52 68 59 92 96 109 82 74 54 57 59 68 75 60 57 57 57 57 57 57 57 57 57 57 57                                      7E7 Price             $136.95 $139.69 $142.49 $145.34 $148.24 $151.21 $154.23 $157.32 $160.46 $163.67 $166.95 $170.29 $173.69 $177.17 $180.71 $184.32 $188.01 $191.77 $195.61 $199.52 $203.51 $207.58 $211.73 $215.96 $220.28 $224.69 $229.18 $233.77 $238.44 $243.21                                      7E7 Stretch price               170.87 174.28 177.77 181.33 184.95 188.65 192.42 196.27 200.20 204.20 208.29 212.45 216.70 221.03 225.46 229.96 234.56 239.26 244.04 248.92 253.90 258.98 264.16 269.44 274.83 280.33 285.93 291.65                                      Total product revenues           4,108.64 15,086.93 9,488.14 13,104.49 13,692.60 17,291.79 23,064.59 20,569.48 32,626.19 34,554.82 40,185.75 30,878.29 28,440.04 21,039.33 22,833.05 24,100.43 28,115.61 31,630.06 25,810.13 25,209.53 25,713.72 26,228.00 26,752.56 27,287.61 27,833.36 28,390.03 28,957.83 29,536.99 30,127.73 30,730.28                                      Cost of goods sold           3,286.91 12,069.55 7,590.51 10,483.59 10,954.08 13,833.44 18,451.67 16,455.59 26,100.95 27,643.86 32,148.60 24,702.63 22,752.03 16,831.46 18,266.44 19,280.34 22,492.49 25,304.05 20,648.10 20,167.63 20,570.98 20,982.40 21,402.05 21,830.09 22,266.69 22,712.02 23,166.26 23,629.59 24,102.18 24,584.22                                      Gross Profit             821.73 3,017.39 1,897.63 2,620.90 2,738.52 3,458.36 4,612.92 4,113.90 6,525.24 6,910.96 8,037.15 6,175.66 5,688.01 4,207.87 4,566.61 4,820.09 5,623.12 6,326.01 5,162.03 5,041.91 5,142.74 5,245.60 5,350.51 5,457.52 5,566.67 5,678.01 5,791.57 5,907.40 6,025.55 6,146.06                                      Depreciation     7.50 29.44 102.23 117.06 123.78 123.80 115.66 108.67 102.83 99.64 99.95 100.84 103.70 106.87 110.54 112.89 114.85 115.88 117.16 118.63 116.20 105.31 62.54 50.92 43.54 39.86 41.10 42.13 43.19 44.07 44.59 45.33 45.25 45.08                                      GS&A expense           308.15 1,131.52 711.61 982.84 1,026.94 1,296.88 1,729.84 1,542.71 2,446.96 2,591.61 3,013.93 2,315.87 2,133.00 1,577.95 1,712.48 1,807.53 2,108.67 2,372.25 1,935.76 1,890.72 1,928.53 1,967.10 2,006.44 2,046.57 2,087.50 2,129.25 2,171.84 2,215.27 2,259.58 2,304.77                                      Operating Profit (before R&D) (7.50) (29.44) (102.23) (117.06) 389.80 1,762.06 1,070.36 1,529.40 1,608.75 2,061.83 2,783.12 2,470.35 3,974.57 4,212.48 4,912.68 3,746.89 3,440.15 2,514.04 2,736.97 2,893.92 3,398.25 3,848.45 3,163.73 3,100.27 3,170.68 3,238.64 3,302.97 3,368.82 3,435.98 3,504.68 3,575.14 3,646.80 3,720.72 3,796.21                                      R&D expense   300.00 900.00 3,000.00 900.00 694.50 647.00 218.23 301.40 314.93 397.71 530.49 473.10 750.40 794.76 924.27 710.20 654.12 483.90 525.16 554.31 646.66 727.49 593.63 579.82 591.42 603.24 615.31 627.62 640.17 652.97 666.03 679.35 692.94 706.80                                      Pre-tax profit   (307.50) (929.44) (3,102.23) (1,017.06) (304.69) 1,115.06 852.13 1,227.99 1,293.82 1,664.12 2,252.64 1,997.25 3,224.17 3,417.72 3,988.40 3,036.69 2,786.03 2,030.13 2,211.81 2,339.61 2,751.60 3,120.96 2,570.09 2,520.45 2,579.26 2,635.39 2,687.66 2,741.21 2,795.81 2,851.71 2,909.11 2,967.45 3,027.78 3,089.41                                      Taxes (or tax credit)   (107.63) (325.30) (1,085.78) (355.97) (106.64) 390.27 298.25 429.80 452.84 582.44 788.42 699.04 1,128.46 1,196.20 1,395.94 1,062.84 975.11 710.55 774.13 818.86 963.06 1,092.33 899.53 882.16 902.74 922.39 940.68 959.42 978.53 998.10 1,018.19 1,038.61 1,059.72 1,081.29                                      After-tax profit   (199.88) (604.13) (2,016.45) (661.09) (198.05) 724.79 553.89 798.19 840.98 1,081.68 1,464.21 1,298.21 2,095.71 2,221.52 2,592.46 1,973.85 1,810.92 1,319.59 1,437.68 1,520.75 1,788.54 2,028.62 1,670.56 1,638.29 1,676.52 1,713.00 1,746.98 1,781.78 1,817.28 1,853.61 1,890.92 1,928.84 1,968.06 2,008.12                                      Capital expenditure   100.00 300.00 1,000.00 300.00 206.57 124.14 15.18 20.97 21.91 27.67 36.90 32.91 52.20 55.29 64.30 49.41 45.50 33.66 36.53 38.56 44.98 50.61 41.30 40.34 41.14 41.96 42.80 43.66 44.53 45.42 46.33 47.26 48.20 49.17                                      Depreciation add-back   7.50 29.44 102.23 117.06 123.78 123.80 115.66 108.67 102.83 99.64 99.95 100.84 103.70 106.87 110.54 112.89 114.85 115.88 117.16 118.63 116.20 105.31 62.54 50.92 43.54 39.86 41.10 42.13 43.19 44.07 44.59 45.33 45.25 45.08                                      Change in WCR           275.28 735.55 (375.12) 242.30 39.40 241.15 386.78 (167.17) 807.80 129.22 377.27 (623.60) (163.36) (495.85) 120.18 84.91 269.02 235.47 (389.94) (40.24) 33.78 34.46 35.15 35.85 36.57 37.30 38.04 38.80 39.58 40.37                                      Annual free cash flow   $(292.38) $(874.70) $(2,914.22) $(844.03) $(556.13) $(11.09) $1,029.48 $643.60 $882.50 $912.51 $1,140.48 $1,533.31 $1,339.41 $2,143.88 $2,261.44 $2,660.94 $2,043.63 $1,897.65 $1,398.13 $1,515.90 $1,590.73 $1,847.86 $2,081.74 $1,689.12 $1,645.13 $1,676.45 $1,710.13 $1,744.41 $1,779.37 $1,814.96 $1,851.14 $1,888.10 $1,925.52 $1,963.65                                                                                                                                                     IRR 15.66%                                                                                                                                                                                                                           Depreciation calculations (not part of exhibit), double declining balance                                                                                                    Depreciation factor: 150%                                                                                                                                                                                                                               Depreciation component.                                                                                                    Cap exp made in   2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037                                        2004 $100.00 $7.50 $6.94 $6.42 $5.94 $5.49 $5.08 $4.70 $4.46 $4.46 $4.46 $4.46 $4.46 $4.46 $4.46 $4.46 $4.46 $4.46 $4.46 $4.46 $4.46                                                                    2005 $300.00   $22.50 $20.81 $19.25 $17.81 $16.47 $15.24 $14.09 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37                                                                  2006 $1,000.00     $75.00 $69.38 $64.17 $59.36 $54.91 $50.79 $46.98 $44.57 $44.57 $44.57 $44.57 $44.57 $44.57 $44.57 $44.57 $44.57 $44.57 $44.57 $44.57 $44.57                                                                2007 $300.00       $22.50 $20.81 $19.25 $17.81 $16.47 $15.24 $14.09 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37 $13.37                                                              2008 $206.57         $15.49 $14.33 $13.26 $12.26 $11.34 $10.49 $9.70 $9.21 $9.21 $9.21 $9.21 $9.21 $9.21 $9.21 $9.21 $9.21 $9.21 $9.21 $9.21 $9.21                                                            2009 $124.14           $9.31 $8.61 $7.97 $7.37 $6.82 $6.30 $5.83 $5.53 $5.53 $5.53 $5.53 $5.53 $5.53 $5.53 $5.53 $5.53 $5.53 $5.53 $5.53 $5.53                                                          2010 $15.18             $1.14 $1.05 $0.97 $0.90 $0.83 $0.77 $0.71 $0.68 $0.68 $0.68 $0.68 $0.68 $0.68 $0.68 $0.68 $0.68 $0.68 $0.68 $0.68 $0.68                                                        2011 $20.97               $1.57 $1.45 $1.35 $1.24 $1.15 $1.06 $0.99 $0.93 $0.93 $0.93 $0.93 $0.93 $0.93 $0.93 $0.93 $0.93 $0.93 $0.93 $0.93 $0.93                                                      2012 $21.91                 $1.64 $1.52 $1.41 $1.30 $1.20 $1.11 $1.03 $0.98 $0.98 $0.98 $0.98 $0.98 $0.98 $0.98 $0.98 $0.98 $0.98 $0.98 $0.98 $0.98                                                    2013 $27.67                   $2.08 $1.92 $1.78 $1.64 $1.52 $1.41 $1.30 $1.23 $1.23 $1.23 $1.23 $1.23 $1.23 $1.23 $1.23 $1.23 $1.23 $1.23 $1.23 $1.23                                                  2014 $36.90                     $2.77 $2.56 $2.37 $2.19 $2.03 $1.87 $1.73 $1.64 $1.64 $1.64 $1.64 $1.64 $1.64 $1.64 $1.64 $1.64 $1.64 $1.64 $1.64 $1.64                                                2015 $32.91                       $2.47 $2.28 $2.11 $1.95 $1.81 $1.67 $1.55 $1.47 $1.47 $1.47 $1.47 $1.47 $1.47 $1.47 $1.47 $1.47 $1.47 $1.47 $1.47 $1.47                                              2016 $52.20                         $3.92 $3.62 $3.35 $3.10 $2.87 $2.65 $2.45 $2.33 $2.33 $2.33 $2.33 $2.33 $2.33 $2.33 $2.33 $2.33 $2.33 $2.33 $2.33 $2.33                                            2017 $55.29                           $4.15 $3.84 $3.55 $3.28 $3.04 $2.81 $2.60 $2.46 $2.46 $2.46 $2.46 $2.46 $2.46 $2.46 $2.46 $2.46 $2.46 $2.46 $2.46 $2.46                                          2018 $64.30                             $4.82 $4.46 $4.13 $3.82 $3.53 $3.27 $3.02 $2.87 $2.87 $2.87 $2.87 $2.87 $2.87 $2.87 $2.87 $2.87 $2.87 $2.87 $2.87 $2.87                                        2019 $49.41                               $3.71 $3.43 $3.17 $2.93 $2.71 $2.51 $2.32 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20                                      2020 $45.50                                 $3.41 $3.16 $2.92 $2.70 $2.50 $2.31 $2.14 $2.03 $2.03 $2.03 $2.03 $2.03 $2.03 $2.03 $2.03 $2.03 $2.03 $2.03 $2.03 $2.03                                    2021 $33.66                                   $2.52 $2.34 $2.16 $2.00 $1.85 $1.71 $1.58 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50                                  2022 $36.53                                     $2.74 $2.53 $2.34 $2.17 $2.01 $1.86 $1.72 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63                                2023 $38.56                                       $2.89 $2.68 $2.47 $2.29 $2.12 $1.96 $1.81 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72                              2024 $44.98                                         $3.37 $3.12 $2.89 $2.67 $2.47 $2.28 $2.11 $2.01 $2.01 $2.01 $2.01 $2.01 $2.01 $2.01 $2.01 $2.01 $2.01 $2.01 $2.01 $2.01                            2025 $50.61                                           $3.80 $3.51 $3.25 $3.00 $2.78 $2.57 $2.38 $2.26 $2.26 $2.26 $2.26 $2.26 $2.26 $2.26 $2.26 $2.26 $2.26 $2.26 $2.26 $2.26                          2026 $41.30                                             $3.10 $2.86 $2.65 $2.45 $2.27 $2.10 $1.94 $1.84 $1.84 $1.84 $1.84 $1.84 $1.84 $1.84 $1.84 $1.84 $1.84 $1.84 $1.84 $1.84                        2027 $40.34                                               $3.03 $2.80 $2.59 $2.39 $2.21 $2.05 $1.89 $1.80 $1.80 $1.80 $1.80 $1.80 $1.80 $1.80 $1.80 $1.80 $1.80 $1.80 $1.80 $1.80                      2028 $41.14                                                 $3.09 $2.85 $2.64 $2.44 $2.26 $2.09 $1.93 $1.83 $1.83 $1.83 $1.83 $1.83 $1.83 $1.83 $1.83 $1.83 $1.83 $1.83 $1.83 $1.83                    2029 $41.96                                                   $3.15 $2.91 $2.69 $2.49 $2.30 $2.13 $1.97 $1.87 $1.87 $1.87 $1.87 $1.87 $1.87 $1.87 $1.87 $1.87 $1.87 $1.87 $1.87 $1.87                  2030 $42.80                                                     $3.21 $2.97 $2.75 $2.54 $2.35 $2.17 $2.01 $1.91 $1.91 $1.91 $1.91 $1.91 $1.91 $1.91 $1.91 $1.91 $1.91 $1.91 $1.91 $1.91                2031 $43.66                                                       $3.27 $3.03 $2.80 $2.59 $2.40 $2.22 $2.05 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95              2032 $44.53                                                         $3.34 $3.09 $2.86 $2.64 $2.45 $2.26 $2.09 $1.98 $1.98 $1.98 $1.98 $1.98 $1.98 $1.98 $1.98 $1.98 $1.98 $1.98 $1.98 $1.98            2033 $45.42                                                           $3.41 $3.15 $2.91 $2.70 $2.49 $2.31 $2.13 $2.02 $2.02 $2.02 $2.02 $2.02 $2.02 $2.02 $2.02 $2.02 $2.02 $2.02 $2.02 $2.02          2034 $46.33                                                             $3.47 $3.21 $2.97 $2.75 $2.54 $2.35 $2.18 $2.07 $2.07 $2.07 $2.07 $2.07 $2.07 $2.07 $2.07 $2.07 $2.07 $2.07 $2.07 $2.07        2035 $47.26                                                               $3.54 $3.28 $3.03 $2.81 $2.59 $2.40 $2.22 $2.11 $2.11 $2.11 $2.11 $2.11 $2.11 $2.11 $2.11 $2.11 $2.11 $2.11 $2.11 $2.11      2036 $48.20                                                                 $3.62 $3.34 $3.09 $2.86 $2.65 $2.45 $2.26 $2.15 $2.15 $2.15 $2.15 $2.15 $2.15 $2.15 $2.15 $2.15 $2.15 $2.15 $2.15 $2.15    2037 $49.17                                                                   $3.69 $3.41 $3.16 $2.92 $2.70 $2.50 $2.31 $2.19 $2.19 $2.19 $2.19 $2.19 $2.19 $2.19 $2.19 $2.19 $2.19 $2.19 $2.19 $2.19                                                                                                               Depreciation     $7.50 $29.44 $102.23 $117.06 $123.78 $123.80 $115.66 $108.67 $102.83 $99.64 $99.95 $100.84 $103.70 $106.87 $110.54 $112.89 $114.85 $115.88 $117.16 $118.63 $116.20 $105.31 $62.54 $50.92 $43.54 $39.86 $41.10 $42.13 $43.19 $44.07 $44.59 $45.33 $45.25 $45.08                                                                                                                                                                                                                                                                    WCR             $275.28 $1,010.82 $635.71 $878.00 $917.40 $1,158.55 $1,545.33 $1,378.16 $2,185.95 $2,315.17 $2,692.45 $2,068.85 $1,905.48 $1,409.63 $1,529.81 $1,614.73 $1,883.75 $2,119.21 $1,729.28 $1,689.04 $1,722.82 $1,757.28 $1,792.42 $1,828.27 $1,864.84 $1,902.13 $1,940.17 $1,978.98 $2,018.56 $2,058.93                                                                                                                                                                                                                                                                                                                                                                                     EXHIBIT 9        Sensitivity Analysis of Project IRR’s by Price, Volume, Development Costs and Cost of Goods SoldUnit Volume        (First 20 Years)   Price Premium    15.66% 0% 5% 10% 15%1500 10.5% 10.9% 11.3% 11.7%1750 11.9% 12.3% 12.7% 13.1%2000 13.0% 13.5% 13.9% 14.4%2250 14.1% 14.6% 15.1% 15.5%2500 15.2% 15.7% 16.1% 16.6%2750 16.1% 16.6% 17.1% 17.6%3000 17.1% 17.6% 18.1% 18.6%         Development        Costs   COGS / Sales    15.66% 78% 80% 82% 84%$6,000,000,000 21.3% 18.7% 15.9% 12.6%$7,000,000,000 19.4% 17.0% 14.4% 11.3%$8,000,000,000 17.9% 15.7% 13.2% 10.3%$9,000,000,000 16.6% 14.5% 12.1% 9.4%$10,000,000,000 15.5% 13.5% 11.2% 8.6% Note: The section below gives key assumptions driving the model–varying these assumptions, given in yellow, allows one to test the sensitivity of IRR.                                                          Average % deliveries of total to date of 757 and 767 For First 20 Years              Year % Deliveries Year %7E7 %7E7 Stretch              1 1.19% 2008 100% 0%              2 4.32% 2009 100% 0%              3 2.54% 2010 80% 20%              4 3.30% 2011 50% 50% Year 4-30 (Need to modify Exhibit 8 spreadsheet construction if the 50% is changed)5 3.35% 2012                  6 4.16% 2013                  7 5.46% 2014                  8 4.76% 2015                  9 7.41% 2016                  10 7.68% 2017                  11 8.76% 2018                  12 6.59% 2019                  13 5.95% 2020                  14 4.32% 2021                  15 4.59% 2022                  16 4.76% 2023                  17 5.46% 2024                  18 6.00% 2025                  19 4.81% 2026                  20 4.59% 2027                  21-30 4.59%                    Deliveries in years 1-20   2500          Deliveries in years 21-30   Same as year 20          Development costs   $8,000,000,000          Composition of development costs:              Capital Expenditures   25%            R&D   75%          Timing of development costs   2004 2005 2006 2007 2008 2009      5% 15% 50% 15% 10% 5%                 Minimum Price of 7E7 in 2002 U.S. $   120500000        Minimum Price of 7E7 stretch in 2002 U.S. $   144500000        Cheaper operating cost and other features price premium   5%       Service Revenues              Cost of goods sold   80%          GSA percentage   7.5%          R&D     2.3%          Tax Expense   35%          Capital Expenditures   0.16%          Working capital % of sales   6.7%          Inflation     2%          Depreciation     150% declining balance 20 year, 0 salvage value. Calculations at bottom of exhibit 7AccountingBusinessFinancial AccountingFINANCIAL 312Share Question