CMPE451 Spring 2020 Boeing 737 MAX problem in engineering economics. The Boeing 737 MAX aircraft was grounded in March 2019, after two crashes in five months killed 348 One expert estimates that the grounding has cost Boeing 9.2 billion dollars to date. Assume that this amount includes all financing, redevelopment, and recertification charges, as well as all fees paid to customers during the grounding. The sell price of a 737 MAX airplane is estimated to be $120,000,000. Anticipating a rapid return to service, Boeing continued production of the 737 MAX throughout 2019, and now has a stockpile of 400 undelivered aircraft. Assume that the 737 MAX receives approval to resume flights (and sales) in July 2020. Assume that production, when resumed, will start at 20 aircraft/month, with a similar number delivered each month from the accumulated backlog. Assume that production will ramp up at 2 aircraft per month starting in the 6th month of production up to a maximum rate of 40 aircraft/month, and then continue at 40/month until all of the existing 2000 orders have been fulfilled. The 2000 orders does not include the 400 aircraft currently awaiting delivery. Assume that it costs Boeing 50% of the sales price to build and deliver a 737 MAX. Assume the current prime rate of interest (4.75%/year) will continue throughout the relevant time frame. Q: Will the profit from sales of 2400 737 MAX aircraft be sufficient to break even after the grounding? If so, how many planes to break even? If not, how many additional planes to break even? Hint: Build a detailed cash flow diagram and then capture it into a spreadsheet. CMPE451 Spring 2020 Boeing 737 MAX problem in engineering economics. The Boeing 737 MAX aircraft was grounded in March 2019, after two crashes in five months killed 348 One expert estimates that the grounding has cost Boeing 9.2 billion dollars to date. Assume that this amount includes all financing, redevelopment, and recertification charges, as well as all fees paid to customers during the grounding. The sell price of a 737 MAX airplane is estimated to be $120,000,000. Anticipating a rapid return to service, Boeing continued production of the 737 MAX throughout 2019, and now has a stockpile of 400 undelivered aircraft. Assume that the 737 MAX receives approval to resume flights (and sales) in July 2020. Assume that production, when resumed, will start at 20 aircraft/month, with a similar number delivered each month from the accumulated backlog. Assume that production will ramp up at 2 aircraft per month starting in the 6th month of production up to a maximum rate of 40 aircraft/month, and then continue at 40/month until all of the existing 2000 orders have been fulfilled. The 2000 orders does not include the 400 aircraft currently awaiting delivery. Assume that it costs Boeing 50% of the sales price to build and deliver a 737 MAX. Assume the current prime rate of interest (4.75%/year) will continue throughout the relevant time frame. Q: Will the profit from sales of 2400 737 MAX aircraft be sufficient to break even after the grounding? If so, how many planes to break even? If not, how many additional planes to break even? Hint: Build a detailed cash flow diagram and then capture it into a spreadsheet
