Boeing 777

Financial Markets & Valuation

Assignment: Boeing 777

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Table of content
Table of content ................................................................................................................... 2 Executive summary ............................................................................................................. 3 Return on Equity .................................................................................................................. 3 Boeing WACC...................................................................................................................... 4 1.1 ß for Defense Segment ......................................................................................... 4 1.2 ß assumptions ....................................................... Error! Bookmark not defined. 1.3 % of aircraft vs Total market value of Boeing assets ............................................. 5 1.4 WACC for commercial division .............................................................................. 5 Boeing’s Investment Decisions ............................................................................................ 7 1.7 Boeing 777 project decisions and main risks ......................................................... 7 1.8 Could Frank Shrontz still stop the project? ............................................................ 7

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Executive summary
 The ROE is ratio calculated as Net Income over Shareholders’ Equity. To increase it Boeing could boost net income increasing revenues and reducing costs. Alternatively could increase debt and use borrowed money in a share buyback program (Equity reduction and Debt increase). Increasing the leverage would increase the company value as long as the ROA is higher than the cost of debt and the company presents positive earnings before taxes  Boeing should pursue the Boeing 777 project only if the IRR of the project is greater than the WACC for the commercial division.... [continues]

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