Calculate the WACC of Boeing
WACC stands for the weighted average cost of capital. The WACC shows how much a company needs to pay in order to raise capital, on average. Capital is how a company finances its operations. It comes as either debt or equity. The cost of debt is the average interest paid on any debt such as loans. The cost of equity is an investor's required rate of return for the company. To find cost of equity, you should use the Capital Asset Pricing Model.
Instructions
1. Find the total amount of debt on the Boeing financial statement. This amount is any debt under liabilities for Boeing.
2. Find the total amount of equity on the Boeing financial statement. This amount is the stockholders' equity section for Boeing.
3. Add together the total debt to equity. This is your total capital.
4. Divide debt by the total capital to find the weight of debt.
5. Divide Boeing's tax expense by net income. Then subtract the result from one to find the inverse tax rate. The tax expense and net income is on the income statement.
6. Multiply the weight of debt by the cost of debt by the inverse tax rate. The cost of debt is in the notes to the financial statements. This is the weighted average of debt.
7. Divide the cost of equity by the total amount of capital. This is the weight of equity.
8. Find the cost of equity using CAPM. CAPM equals historic market return minus risk free rate. Then multiply the result by Boeing's beta. Finally, add the risk free rate. You can use the current 3 month T Bill rate as the risk free rate. You should research Boeing to find their current beta because beta is a very complex formula. All online financial companies will computer beta for you. The historic market return is the normal return the entire market usually gets.
9. Multiply the weight of equity by the cost of equity to find the average weight of equity.
10. Add the average weight of equity to the average weight of debt to calculate Boeing's WACC.
