Boeing Case Study

1744 WordsMay 5, 20097 Pages
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…
This will be the capital structure weight for the WACC. Thus, debt percentage is 34.4% and equity is 65.6%. WACC = 34.4*0.0533(1-0.35) + 65.6*0.1582 = 1.1917 + 7.3996 = 11.6% The WACC calculates an overall return that a corporation must earn on its existing assets and business operation in order to increase or maintain the current value of the current stock. At the date of this case, stock prices for Boeing closed at $36.41. In order to maintain this stock price over the life of the 7E7 project, the company must earn at least 11.6% returns from the project. Overall, based on the initial calculations, the project appears to be economically reasonable. The discount rate for this project should be 15.82% however, to maintain the value of stocks, Boeing only needed an 11.6% return from the 7E7 project. This means the company had a good safety margin in discounting cash flow to net present value. Sensitivity analysis is a technique used to determine how varying independent variable values will impact a selected dependent variable under given assumptions. Utilizing sensitivity analysis is a way to predict the outcome of a situation if key predictions turn out to be different (Investopedia, 2009). In the sensitivity analysis depicted in Exhibit 9 of the case, the company’s base internal rate of return (IRR) is 15.7%. Exhibit 9 shows changes in the IRR based on the number of units sold and the price premium

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