Essay: WACC Capital Structure of Boeing Company

Sample Essay

The WACC capital structure analysis was conducted for the Boeing Company. For the purpose of this analysis the information available from the 2008 annual statements, stock quotations and financial profile of the Boeing Company and the market were employed. Certain assumptions were made as well which are highlighted in the analysis. The inputs taken for analysis pertained to the variables of earnings before interest which stood at $4,884 million, depreciation, capital spending, interest expense on debt, current rating of the company AA based on its debt, interest rate of 10 percent based on its debt, the probability of bankruptcy was assumed at 0.28 percent with a bankruptcy cost of 35 percent. The beta was taken at 1.25 from the market reports while the share value and total equity were taken from financial reports of the company. The debt ratio for Boeing is exorbitantly high. The main reason for this is the low level of equity in the company which is actually recorded at a negative value, while the loans and debts taken by the company for short and long term outstrip both assets as well as the capital of the company. As a result the ion order to sustain operations the company needs to reduce its debt ratio to more a more healthy level where its cots of equity is reduced.

 

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