Question

Find 2018 financial statements and other financial data (e.g., beta) for the Boeing Company (Stock ticker: BA) from Yahoo! Finance, Google Finance, MSN Money, or other sources.

(1)  Estimate the company’s weights of capital (debt, preferred stock, and common stock) in 2018

(2)  Estimate the company’s before-tax and after-tax component cost of debt in 2018

(3)  Estimate the firm’s component cost of preferred stock in 2018

(4)  Estimate the component cost of common equity using CAPM in 2018

(5)  Compute the firm’s weighted average cost of capital (WACC) in 2018

Income Statement

All numbers in thousands

Revenue	12/31/2018	12/31/2017	12/31/2016	12/31/2015
Total Revenue	101,127,000	94,005,000	93,496,000	96,114,000
Cost of Revenue	81,490,000	76,612,000	79,026,000	82,088,000
Gross Profit	19,637,000	17,393,000	14,470,000	14,026,000
Operating Expenses
Research Development	3,269,000	3,179,000	3,391,000	3,331,000
Selling General and Administrative	4,525,000	4,101,000	4,091,000	3,525,000
Non Recurring	-	-	-	-
Others	-	-	-	-
Total Operating Expenses	89,284,000	83,892,000	86,508,000	88,944,000
Operating Income or Loss	11,843,000	10,113,000	6,988,000	7,170,000
Income from Continuing Operations
Total Other Income/Expenses Net	-239,000	-6,000	-1,205,000	-15,000
Earnings Before Interest and Taxes	11,843,000	10,113,000	6,988,000	7,170,000
Interest Expense	-475,000	-360,000	-306,000	-275,000
Income Before Tax	11,604,000	10,107,000	5,783,000	7,155,000
Income Tax Expense	1,144,000	1,649,000	749,000	1,979,000
Minority Interest	71,000	57,000	60,000	62,000
Net Income From Continuing Ops	10,460,000	8,458,000	5,034,000	5,176,000
Non-recurring Events
Discontinued Operations	-	-	-	-
Extraordinary Items	-	-	-	-
Effect Of Accounting Changes	-	-	-	-
Other Items	-	-	-	-
Net Income
Net Income	10,460,000	8,458,000	5,034,000	5,176,000
Preferred Stock And Other Adjustments	-	-	-	-
Net Income Applicable To Common Shares	10,460,000

Balance Sheet

Period Ending	12/31/2018	12/31/2017	12/31/2016	12/31/2015
Current Assets
Cash And Cash Equivalents	7,637,000	8,813,000	8,801,000	11,302,000
Short Term Investments	927,000	1,179,000	1,228,000	750,000
Net Receivables	13,904,000	11,088,000	8,832,000	8,713,000
Inventory	62,567,000	61,388,000	43,199,000	47,257,000
Other Current Assets	2,335,000	2,417,000	-	-
Total Current Assets	87,830,000	85,194,000	62,488,000	68,234,000
Long Term Investments	1,087,000	1,260,000	1,317,000	1,284,000
Property Plant and Equipment	12,645,000	12,672,000	12,807,000	12,076,000
Goodwill	7,840,000	5,559,000	5,324,000	5,126,000
Intangible Assets	3,429,000	2,573,000	2,540,000	2,657,000
Accumulated Amortization	-	-	-	-
Other Assets	2,110,000	2,348,000	1,748,000	1,673,000
Deferred Long Term Asset Charges	284,000	321,000	332,000	265,000
Total Assets	117,359,000	112,362,000	89,997,000	94,408,000
Current Liabilities
Accounts Payable	12,916,000	12,202,000	11,190,000	10,800,000
Short/Current Long Term Debt	2,690,000	435,000	284,000	734,000
Other Current Liabilities	54,936,000	51,260,000	27,623,000	27,589,000
Total Current Liabilities	81,590,000	74,648,000	50,134,000	50,412,000
Long Term Debt	8,670,000	8,159,000	6,804,000	6,875,000
Other Liabilities	24,702,000	26,219,000	29,418,000	28,869,000
Deferred Long Term Liability Charges	-	-	-	-
Minority Interest	71,000	57,000	60,000	62,000
Negative Goodwill	-	-	-	-
Total Liabilities	116,949,000	110,649,000	89,120,000	88,011,000
Stockholders' Equity
Misc. Stocks Options Warrants	-	-	-	-
Redeemable Preferred Stock	-	-	-	-
Preferred Stock	-	-	-	-
Common Stock	5,061,000	5,061,000	5,061,000	5,061,000
Retained Earnings	55,941,000	49,618,000	40,714,000	38,756,000
Treasury Stock	-67,431,000	-59,827,000	-49,720,000	-42,316,000
Capital Surplus	6,768,000	6,804,000	4,762,000	4,834,000
Other Stockholder Equity	-15,083,000	-16,373,000	-13,623,000	-12,748,000
Total Stockholder Equity	339,000	1,656,000	817,000	6,335,000
Net Tangible Assets	-10,930,000

Statement of Cash Flows

Period Ending	12/31/2018	12/31/2017	12/31/2016	12/31/2015
Net Income	10,460,000	8,458,000	5,034,000	5,176,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation	2,114,000	2,047,000	1,889,000	1,833,000
Adjustments To Net Income	464,000	589,000	651,000	559,000
Changes In Accounts Receivables	-2,621,000	-2,440,000	1,118,000	-1,069,000
Changes In Liabilities	2,638,000	4,830,000	-740,000	954,000
Changes In Inventories	568,000	-1,403,000	4,004,000	-1,110,000
Changes In Other Operating Activities	1,879,000	609,000	-726,000	2,543,000
Total Cash Flow From Operating Activities	15,322,000	13,346,000	10,496,000	9,363,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures	-1,722,000	-1,739,000	-2,613,000	-2,450,000
Investments	291,000	38,000	-513,000	554,000
Other Cash flows from Investing Activities	-11,000	6,000	7,000	39,000
Total Cash Flows From Investing Activities	-4,621,000	-2,058,000	-3,378,000	-1,846,000
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid	-3,946,000	-3,417,000	-2,756,000	-2,490,000
Sale Purchase of Stock	-	-	-	-
Net Borrowings	1,365,000	1,124,000	-34,000	861,000
Other Cash Flows from Financing Activities	35,000	35,000	-24,000	157,000
Total Cash Flows From Financing Activities	-11,722,000	-11,350,000	-9,587,000	-7,920,000
Effect Of Exchange Rate Changes	-53,000	80,000	-33,000	-28,000
Change In Cash and Cash Equivalents	-1,074,000

Answer 1

(1) Company's weight of capital:

Capital type	Amount	Weight
Debt	8,670,000	12.44%
Preferred stock	0	0
Common stock (Incl Retained earnings)	61,002,000	87.56%

(2) Cost of debt:

Before tax cost of debt = Interest expense/ long term debt = 475,000/8,670,000 * 100 = 5.4787%

Tax rate = Income tax expense / Taxable income = 1,144,000/11,604,000 * 100 = 9.8587%

After tax cost of debt = 5.4787 - 0.098587 = 4.9386%

(3) Component cost of preferred stock = 0 because preferred stock is non-existent in the given company data.

(4) Component cost of common equity using CAPM:

CAPM is the Capital Asset Pricing Model which formulates as

Required/ Expected rate of return = Risk free rate + Beta (Market premium)

It can determined that cost of common stock cannot be calculated without risk free rate and market premium.

It is assumed that dividend paid is the cost of common stock using dividend capitalization method.

Therefore,

Cost of equity = Dividends paid / (Common equity+ retained earnings) = 3,946,000/(5,061,000+55,941,000) * 100 = 6.4686%

(5) Weighted average cost of capital (WACC) = (After tax cost of debt * Weight of debt) + (Cost of Common equity * Weight of common equity) = (4.9386 * 12.44%) + (6.4686 * 87.56%) = 6.2783%