Boeing 777 QUESTION 1: The WACC that Boeing should use to discount the cash flows for the Boeing 777 investment is the WACC of the Boeing’s commercial division. Step 1: We needed to calculate the Beta of the commercial division of Boeing. We know that Beta of Boeing Corp. is the weighted average of the defense division Beta and the commercial division Beta. We started by calculating the unlevered Beta of Boeing Corp. We did that by unlevering the long-term Boeing Betas i.e.‚ more
Premium Mathematics Arithmetic mean Average
Bair would need to complete a valuation of the 7E7 project and prove that the project would be profitable for Boeing’s shareholders. II. Alternative Solutions 1. Determine Boeing’s Net Present Value (NPV) 2. Use Weighted Average Cost of Capital (WACC) III. Analysis of Alternatives NPV (Net Present Value) In finance‚ the net present value (NPV) or net present worth is defined as the sum of the present values of incoming and outgoing cash flows over a period of time. The net present value is
Premium Net present value Present value Weighted average cost of capital
Hill Country Snack Foods is a company which produce variety of snacks. Their operating strategy is a combination of good products‚ efficient and low-cost operation‚ and singular management. * Good products are not only about high quality‚ but also about to satisfy different type’s customers by producing many kinds of snacks. Customers are satisfied by companies’ quick react to their requirements or preferences and reinvent and expand its products. For example‚ the company has also tried to change
Premium Finance Weighted average cost of capital Corporate finance
000‚000 (16‚000‚000) (16‚000‚000) 4500000 Should use WACC Cost of Capital As we’ve previously discussed in class‚ WACC is typically the best number to use for cost of ca WACC=KdWd(1-T)+KeWe Ke=rF+B(MRP) Market Value Of Equity=#of shares outstanding (market share price) MV of Equity rF MRP 4.60% 6% $ 12‚000 B # of shares MP of shares Total Debt 1.1 500 $24 3000 Tax 40% Kd= WACC=KdWd(1-T)+KeWe WACC 9.6656% Year 4 2011 Year 5 2012 Year 6 2013 1‚000
Premium Finance Investment Stock
4. Explain investment risk 5. Estimate the cost of publicly traded equity capital (e.g.‚ exchange-listed common stocks) 6. Estimate the cost of private equity capital 7. Explain how capital costs combine into a weighted average cost of capital (WACC) 8. Understand venture investors’ target returns and their relation to capital costs CHAPTER OUTLINE 7.1 IMPLICIT AND EXPLICIT FINANCIAL CAPITAL COSTS 7.2 FINANCIAL MARKETS 7.3 DETERMINING THE COST OF DEBT CAPITAL A. Determinants of Market
Premium Interest Venture capital Investment
The Venture Capital Division of Boeing has four projects on the table with three additional leverages of debt. As the financial analyst for the division I was given the task of evaluating the four capital budgeting projects. After evaluating each project I will recommend which project will bring the most value to shareholders and the firm. What is the cost of equity for each project at 0‚ 20%‚ and 50% leverage? From the information provided the cost of equity at 0‚ 20%‚ and 50% leverage was
Premium Weighted average cost of capital Corporate finance
other significant conditions such as project risk. However it can as well be seen that this strategy may conflict with the objective‚ as the company uses the hurdle rate to evaluate potential investments where the cost of equity is higher‚ then the WACC would appear higher as well(hurdle rate)and distract the company to invest in some
Premium Rate of return Finance Weighted average cost of capital
When choosing our risk free rate‚ we decided to base it off of the assumption that the project would last 5-10 years. The 5 year bond yield is 6.22% and for 10 years 6.34% (Exhibit 3) which averages out to a risk free rate of 6.28%. Prevailing Yields on U.S. Government Securities (August 31‚ 1997) | | Annualized Yield to Maturity | | | | | 3-Month T-Bills | 5.24% | | 1-Year Bonds | 5.59% | | 5-Year Bonds | 6.22% | | 10-Year Bonds | 6.34% | | 20-Year Bonds | 6.69% |
Premium Rate of return Investment Stock
OBJECTIVE: To find β‚ Value of Share and Weighted Average Cost of Capital (WACC) for TATA POWER CO. LTD. REFERENCE INDEX: Reference index used for β and other calculations is NSE INDEX. I have collected weekly data from 31/08/2005 to 30/08/2010. COST OF CAPITAL Cost of capital of the company has been calculated by using Weighted Average Cost of Capital (WACC) by assigning weights to cost of equity and cost of debt. COST OF EQUITY- CAPM model has been used to calculate the cost of equity
Premium Dividend yield Weighted average cost of capital Stock market
or above normal economic performance? If ROA > WACC: * Company creates value for shareholders * Company generates a positive NPV (Net Present Value) * Company generates a positive EVA (Economic Value Added) (a) ROA = 14.3%‚ WACC = 12.8% Above normal economic performance (b) ROA = 4.3%‚ WACC = 6.7% Below normal economic performance (c) ROA = 6.5%‚ WACC = 9.2% Below normal economic performance (d) ROA = 8.3%‚ WACC = 8.3% Normal economic performance 5. Is it possible
Premium Value added Economics Net present value