The Boeing Corp A)$1,747M
B)$3,134M
C)$3,242M
D)$4,989M
E)$5,089M

question 17

Multiple Choice

The Boeing Corp. is considering building a new aircraft, the 787-larger than the 747 and larger than the Airbus A380. The company's Renton WA Facility, where 747s are currently 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 increased by $1.855B. Assume that this inventory is sold at the end of the project at t = 2. The first sales from operation of the new plant will occur at the end of year 1 (t = 1) . Boeing forecasts sales of 220 planes in each of the two years. The plane will be sold for $130M each. The cost of manufacturing a plane is $115M. Annual overhead expenses are $775M. The construction facilities are classified as 15 year property. When the plant is closed it will be sold for $1B. The company is in the 34% marginal tax bracket. Boeing's cost of capital is 12%. What are the terminal year cash flows? MACRS Depreciation Rates
$$\begin{array} { | c | c | c | } \hline \text { Year } & \mathbf { 1 0 - Y e a r } & \mathbf { 1 5 } - \text { Year } \\\hline 1 & 10.00 \% & 5.00 \% \\\hline 2 & 18.00 \% & 9.50 \% \\\hline 3 & 14.40 \% & 8.55 \% \\\hline\end{array}$$

• A)$1,747M
• B)$3,134M
• C)$3,242M
• D)$4,989M
• E)$5,089M

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Definitions:

Monte Carlo Simulation

A computational algorithm that relies on repeated random sampling to obtain numerical results, often used in physical and mathematical problem-solving.

Correlation Coefficients

Statistical measures that quantify the strength and direction of the linear relationship between two variables, ranging from -1 (perfect negative correlation) to 1 (perfect positive correlation).

Latin Hypercube Sampling

A statistical method for generating a sample of plausible collections of parameter values from a multidimensional distribution.

Monte Carlo Forecasting

A technique using random sampling and statistical modeling to predict outcomes in complex systems or processes.