Boeing 7e7 Case Study Analysis Examples

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The Boeing Company is an international aerospace and defense corporation originally founded by William E. Boeing in Seattle, Washington. The international corporate headquarters are now located in Chicago, Illinois (Boeing, 2009). Boeing was initially incorporated as Pacific Aero Products Company in 1916 (Boeing, 2009). Since 1916, Pacific Aero Products Company has transformed into Boeing and expanded into the largest global aircraft manufacturer by revenue, orders and deliveries, and the second largest aerospace and defense contractor in the world (Wikipedia, 2009). Boeing is the largest exporter in the United States and its stock is a component of the Dow Jones Industrial Average (Wikipedia, 2009). Boeing currently employs more…show more content…

The average Beta for defense business is 0.25 = (0.21+0.29)/2. This indicates the defense segment of Boeing has a low volatility and therefore constitutes minimal risk. In 2002, commercial business generated $28,387 million in revenue and the defense systems segment generated $24,957 in revenue. Total, the weight of commercial business is 53% and the weight of defense systems business is 47%. 1.05 = 0.53*Commercial Beta + 0.47*0.25 Commercial Beta = 1.76 Calculation of CAPM R = 4.56 + 1.76 * 6.4 = 15.82% The appropriate required rate of the return for evaluation the 7E7 project should be 15.82%. However, there is a discrepancy in the information available to executives at the time of the case and the real market situation. Thus, the average return on equity in airspace and the defense industry from April 2004 to April 2009 was 18.58% (Rueters, 2009). The market performed better than the 2003 projections. The weighted average costs of capital (WACC) provides an idea of how much it costs shareholders to finance new projects. Companies use different types of obligations and assets to finance their operations and investments. The formula used to find the WACC is: WACC = (percent of debt)(Rd)(1-Tax rate) + (Percent of Equity)(Re) Rd = Cost of debt, found as an average yield for all bonds, Exhibit 11 =

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