BOEING 7E7 - The Boeing 7E7 In order to evaluate the Boeing 7E7 project we have to calculate the WACC and compare it with IRR(15.66 WACC Part 1 Debt

# BOEING 7E7 - The Boeing 7E7 In order to evaluate the Boeing...

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The Boeing 7E7In order to evaluate the Boeing 7E7 project, we have to calculate the WACC and compare it with IRR (15.66%).WACC: Part 1- DebtFirst, given the outstanding bonds of the Boeing Company,the market value of debtcould be summed up of each price / 100*each debt amount ( see the exhibit 1). Second, intuitively, for the project last for 30 years, people incline to assume the YTMof thirty year bonds (Boeing’s outstanding bond with the maturity of 2/15/2033) as the debt cost of capital. However, since we know all of Boeing’s outstanding bonds, we should use the weighted YTM, and sum them up as the TOTAL YTM to better represent Boeing’s cost of debt.The tax rate is given as 35%. As a result, the amount from the debt equals to (D/V)*Cost of Debt*(1-T) = 34.42623% *5.335 %*( 1-35%) = 1.19% WACC: Part 2- EquityGiven the market-value debt/equity ratios,the market value of equitycould be calculated by dividing the market value of debt to 0.525 of the given ratio: 5,022.11868 (in millions) / 0.525 = 9,565.94034 (in millions)To calculate theequity cost of capital, the Capital asset Pricing Model (CAPM) provides a practical way to identify an investment with similar risk. Based on CAPM,
the cost of capital of any investment opportunity equals the expected return of available investments with the same data, as the following formula:Ri = Rf + Betai * (E(Rmkt)-Rf)1)Rf:
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