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# Boeing

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Submitted By jmdh625
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Appendix
Beta
βL=1+1-tDE∙βU
→βU =βL1+1-tDE = 1.62/ (1+ (1-0.35)× 0.525
=1.21
1.21 = % of commercial × (βcommercial) + % of defense × (β defense) * Unlevered Defense Beta (βud )
From the information of Exhibit 10, we derived the Boeing’s unlevered defense beta by using the average of comparable firms’ beta. | Lockheed Martin | Northrop Grumman | 60 trading days NYSE Beta | 0.37 | 0.30 | Tax rate | 0.35 | 0.35 | Market-value debt/equity ratios | 0.410 | 0.640 | Unlevered Beta | 0.29 | 0.21 |
Average Unlevered Defense Beta (βud ) = 0.29+0.212 = 0.25 * Unlevered Commercial Beta (βuc)
1.21 = % of commercial × (β commercial) + % of defense × (β defense)
Input data from Exhibit 1, % of commercial and defense are weighted by revenues and profit.
% of commercial =\$28,387+\$2,847\$54,069+\$3.868 = 0.54
% of defense = 1- 0.54 = 0.46
1.21 = 0.54 ×(β commercial) + 0.46 × 0.25
Unlevered β commercial(βuc) = 2.02

* Levered Commercial Beta (βLC) = 1+1-tDE∙βU = 1+1-0.35× 0.525∙2.02 = 2.71
Equity Market Risk Premium (EMRP)
Long term EMRP is 8.4%
Return on Equity
Based on CAPM Model, re= rf+β∙EMRP rf=0.85% (3 month Treasury Bill rate) β =2.71
EMPR =8.4% re=0.85%+2.71×8.4%=23.61% Return on Debt rd = 5.8562%
WACC
WACC = DV×rd ×1-t+EVre = 0.5251+0.525×5.8562%×1-0.35+11+0.525×23.61% = 16.79%

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