|
2007年 03月 13日
ようやく完成。
Main Points In 1989 Boeing (BA: NYSE) was considering the launch of a new aircraft—the 777—to carve out a niche for mid-size to large aircraft to complement its current fleet. To evaluate the project and determine whether or not to enter production, an appropriate discount rate was needed. Because Boeing was comprised of two separate divisions—Defense and Commercial—we cannot simply assume that the firm-wide beta accurately captures the risk of launching the 777. In order to gauge the risk, we need to determine the beta of the Commercial division (βcommercial) and apply this beta to the projected cash flows of the 777 project. We have decided that cost of capital to launch the 777 project is less that its rate of return, yielding a positive net present value. Boeing should launch the 777 jet aircraft . Detailed Study The first step in determining the beta of the Commercial division is to select an appropriate equity beta: Beta of Equity (βequity) = 0.87 (Against NYSE Composite Index: 58 months) In choosing the equity beta we had to answer two questions: the appropriate index to measure the beta against and the time period to use in our determination of beta. We have decided to use the beta measure against the NYSE Index because it is more representative of the true market portfolio. Over 2,000 stocks are covered in the Index, of which over 1,600 are from United States corporations and over 360 are foreign listings. We then choose to use the 58 month NYSE composite beta. This metric most accurately reflected Boeings position in terms of equity risk. We believe that the 60-day beta priced in too much of the Iraqi invasion of Kuwait (which led to a huge increase in the price of oil, driving demand into the ground) and that the 12 month beta still did not represent a long enough period to measure the true equity risk of Boeing. The next step in calculating the Commercial beta is to determine the beta of Boeing’s debt. Beta of Debt (βdebt) = 0.169 E(Rd) = Rf + βdebt * [E(Rm) – Rf] 9.73% = 8.82% + βdebt * 5.4% βdebt = 0.169 By running the betas of the equity and debt through the formula below, we can generate a beta for the entire firm (βasset): Beta of entire firm (βasset) = 0.857 βequity = βasset + D/E (βasset – βdebt) 0.87 = βasset + 0.018 (βasset – 0.169) βasset = 0.857 The third step is to calculate the beta of defense division (βdefense). In calculating the defense division beta, we chose organizations whose revenues were almost exclusively derived from the defense sector, namely: Northrop, Grumman, and Lockheed. We assumed here that the beta of debt was comparable across the industry, and that any difference would have a negligible effect on the calculation of the firm-wide asset betas. (In our analysis, we did not include MD beta because MD’s defense revenue proportion was lower than that of our comparable firms and it is possible that MD’s beta of debt was higher than 0.169 due to high D/E ratio.) The average βasset of the three firms was .462 (=βdefense). As a result, Boeing’s βcommercial if found to be the following: βasset = w1 * βcommercial + w2 * βdefense 0.857 = 74% * βcommercial + 26% * 0.462 βcommercial = 0.996 Results Using βcommercial, this project’s discount rate = 8.82% + 0.996×5.4% = 14.20%, and net present value at 14.20% discount rate is $1903.623 million. Boeing should launch the 777 jet aircraft project.
by guhnguhn
| 2007-03-13 13:47
|
ファン申請 |
||