Boeing Case Solution

F523 - SPRING 2013 BOEING CASE

1. What is the appropriate required rate of return against which to evaluate the prospective IRR 's from the B ANSWER:The appropriate rate of return against which to evaluate the IRR is the risk-free rate, plus the market risk

1a. Please use the capital asset pricing model to estimate the cost of equity. At the date of the case, the 74 over T-bonds. Which beta, risk-free rate, and risk premium did you use? Why? Financing Components Debt Equity Market Values Weight Cost of Capital (After Tax) $ 6,823,736,197 0.85 3.72% $ 1,176,263,803 0.15 28.18% Total: $ 8,000,000,000 1.00 WACC WACC Inputs: Beta: Risk-Free Rate: Market Risk Premium: Pre-tax Cost of Debt: Income Tax Rate:

Exhibit 2 - 2002 Balance …show more content…

Assumptions can be changed to vary the results.

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Boeing Delivery Schedule

Year 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

707 8 77 91 80 68 34 38 61 83 118 111 59 19 10 4 11 21 7 9 8 13 6 3 2 8 8 8 3 4 9 5 4 14 5 1

717

727

737

747

757

767

777

DC-8 21 91 42 22 19 20 31 32 41 102 85 33 13 4

6 95 111 135 155 160 114 55 33 41 92 91 91 61 67 118 136 131 94 26 11 8

12 32 49 20 8

4 105 114 37 29 22 23 55 51 41 25 40 77 92 108 95 82 67 115 141 161 165 146 174 215 218 152 121 89 76 135 281 320 281 299 223 104

4 92 69 30 30 22 21 27 20 32 67 73 53 26 22 16 24 35 23 24 45 70 64 61 56 40 25 26 39 53 47 25 31 27 14

2 25 18 36 35 40 48 51 77 80 99 71 69 43 42 46 54 67 45 45 29 12

20 55 29 25 27 37 53 37 60 62 63 51 41 37 43 42 47 44 44 40 35 21

13 32 59 74 83 55 61 47 25

1010

121

1831

4483

1333 Total: 19822001 747

1034 993 757

913 857 767

449

556

707

717

727

737

777

DC-9

DC-10

5 69 153 202 122 51 46 32 29 48 42 50 22 22 39 18 16 10

13 52 57 47 43 19 14 18 35 41 25 11 12 10 11 17 10 10 1

Total Deliveri MD-11 MD-80 MD-90 es 8 98 182 122 90 59 153 208 319 471 680 498 287 213 185