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Betas

Prof. H. Pirotte - SBS/ULB


 Nov 2003

Data

Pre-tax cost of debt


tc
Market value of debt
Share price
Number of shares
rf
Rm-rf

Calculations
Beta
MV Equity
Total Value
D/V
E/V
kd(1-tc)
ke
WACC A

E
Simple

Case 1 Case 2 Case 2


Rm-rf 5.40% 5.40% 5.40%
rf 8.82% 8.82% 8.82%
Beta 1.79 1.79 0.81
ke 18.49% 18.49% 13.19%
kd 9.73% 9.31% 9.73%
tc 34% 34% 34%
E 96% 96% 98%
D 4% 4% 2%
WACC 18.00% 17.99% 13.07%

Commercial Beta

tc 34%

Beta equity D/E Beta assets


Boeing 0.81 0.02 0.80

Grumman 0.8 1.76 0.37


Northtrop 0.74 1.29 0.40
Lockheed 0.87 1.18 0.49
Average 0.42

Weigths of Commercial for Boeing


ALL Comm aircraft %
Revenues 20623 14305 69%
Profit 922 1165 126%
Assets 13278 6675 50%

Revenues 0.9686
Profit 0.7211
Assets 1.1771

Back to Equity Beta


Revenues 0.9802
Profit 0.7296
Assets 1.1911

rf 8.82%
market premium 5.40%
ke Revenues 14.11%
Profit 12.76%
Assets 15.25%

kd 9.31%
D/V 2%
E/V 98%
WACC Revenues 13.95%
Profit 12.63%
Assets 15.07%
NPVs
Prof. H. Pirotte - SBS/ULB
 Nov 2003
12%
3483.27
1990 -93.72 -93.72
1991 -957.3 -854.73
1992 -1451.76 -1157.33
1993 -1078.82 -767.88
1994 -711.98 -452.48
1995 -229.97 -130.49
1996 -681.74 -345.39
1997 1806.97 817.38
1998 1914.06 773.06
1999 1676.05 604.4
2000 1821.34 586.42
2001 1716.79 493.54
2002 1717.27 440.78
2003 1590 364.39
2004 1798.97 368.1
2005 616.79 112.69
2006 1484.73 242.19
2007 2173.59 316.57
2008 1641.97 213.52
2009 677.92 78.71
2010 1886.97 195.62
2011 2331.34 215.79
2012 2576.47 212.93
2013 2213.18 163.31
2014 2104.74 138.66
2015 2285.77 134.46
2016 2353.81 123.62
2017 2423.88 113.66
2018 2496.06 104.51
2019 2568.6 96.02
2020 2641.01 88.15
2021 2717.53 80.99
2022 2798.77 74.47
2023 2882.44 68.48
2024 2964.44 62.88
THE BOEING 777 CASE

Historic Boeing Sales Trends


Calculation of Pattern of Yearly Unit Sales over First 20 Years
Years of Deliveries
Aircraft Model: 1 2 3 4
707 8 77 91 80
727 6 95 111 135
737 4 105 114 37
747 4 92 69 30
757 2 25 18 36
767 20 55 29 25

Average 7 75 72 57
% of 10 year 1.42% 14.50% 13.95% 11.08%

Exhibit 6
Boeing 777 - Cash Flows

Assumptions
Price per Plane 130
WCR as % of sales 9.8%
GS&A exp (% of sales) 4.0%
R&D exp (% of sales) 3.0% (excluding 1990-1995)
Cap Ex (% of sales) 0.1% (excluding 1990-1994 and years before introduction of derivative
Depreciation double digit accelerated method
Total # of Planes yrs 1-10 1000
Total # of Planes yrs 11-20 1000
WACC 20.0%
Inflation 3.0%
Marginal Effective Tax Rate 34.0%

1990
Revenues
Planes Delivered
Price per Plane
Total Revenues

Cost of Goods Sold


Gross Profit

Depreciation 0.00
GS&A Expense
Operating Profit 0.00
R&D Expense 142.00

Pre-tax Profit (142.00)


Taxes (or Tax Credit) (48.28)
After-tax Profit (93.72)
Capital Expenditure 0.00
Depreciation Add-back
Change in Wkg. Capital
Annual Free Cash Flow (93.72)
PV(FCF) -93.72
TOTAL VALUE -267.38
IRR 18.9%

Boeing 777 - Depreciation


1991 Cap Ex (net, beg. year)
Yearly Depreciation Expense
Cumulative Depreciation Exp
1992 Cap Ex (net, beg. year)
Yearly Depreciation Expense
Cumulative Depreciation Exp
1993 Cap Ex (net, beg. year)
Yearly Depreciation Expense
Cumulative Depreciation Exp
1994 Cap Ex (net, beg. year)
Yearly Depreciation Expense
Cumulative Depreciation Exp
2003 Cap Ex (net, beg. year)
Yearly Depreciation Expense
Cumulative Depreciation Exp
2004 Cap Ex (net, beg. year)
Yearly Depreciation Expense
Cumulative Depreciation Exp
2008 Cap Ex (net, beg. year)
Yearly Depreciation Expense
Cumulative Depreciation Exp

Total Annual Depreciation Expense

Sensitivity Analysis: IRR


Unit Price ($millions)

-267.38 100 110 120


700 -1,363.21 -1,207.69 -1,052.16
800 -1,201.87 -1,030.21 -858.55
Unit Volume (first 10 yrs.) 900 -1,040.52 -852.72 -664.93
1000 -879.17 -675.24 -471.31
1100 -717.82 -497.76 -277.69
1200 -556.47 -320.27 -84.07
R&D Exp./Sales

-267.38 1.0% 2.0% 3.0%


1.0% 929.32 692.92 456.52
2.0% 688.02 451.62 215.22
GS&A/Sales 3.0% 446.72 210.32 -26.08
4.0% 205.42 -30.98 -267.38
5.0% -35.88 -272.28 -508.68
6.0% -277.18 -513.58 -749.98
7.0% -518.48 -754.88 -991.28
5 6 7 8 9 10
68 34 38 61 83 18
155 160 115 54 33 41
29 22 23 55 51 41
30 22 21 27 20 32
35 40 48 51 77 81
27 37 40 37 60 62
Sum of avg of yrs 1-10 516
57 53 48 48 54 46
11.11% 10.17% 9.21% 9.21% 10.47% 8.88%

oduction of derivatives)

1991 1992 1993 1994 1995 1996

14 145
$130.00 $133.90
1,847.55 19,418.96

1,662.79 16,506.12
184.75 2,912.84

40.00 96.00 116.40 124.76 112.28 101.06


73.90 776.76
(40.00) (96.00) (116.40) (124.76) (1.43) 2,035.03
865.00 1,340.00 1,240.00 840.00 240.00 582.57

(905.00) (1,436.00) (1,356.40) (964.76) (241.43) 1,452.46


(307.70) (488.24) (461.18) (328.02) (82.09) 493.84
(597.30) (947.76) (895.22) (636.74) (159.34) 958.62
400.00 600.00 300.00 200.00 1.85 19.42
40.00 96.00 116.40 124.76 112.28 101.06
181.06 1,722.00
(957.30) (1,451.76) (1,078.82) (711.98) (229.97) (681.74)
-797.75 -1008.17 -624.32 -343.36 -92.42 -228.31

1991 1992 1993 1994 1995 1996


400.00 360.00 324.00 291.60 262.44 236.20
40.00 36.00 32.40 29.16 26.24 23.62
40.00 76.00 108.40 137.56 163.80 187.42
600.00 540.00 486.00 437.40 393.66
60.00 54.00 48.60 43.74 39.37
60.00 114.00 162.60 206.34 245.71
300.00 270.00 243.00 218.70
30.00 27.00 24.30 21.87
30.00 57.00 81.30 103.17
200.00 180.00 162.00
20.00 18.00 16.20
20.00 38.00 54.20

40.00 96.00 116.40 124.76 112.28 101.06

130
-896.64
-686.89
-477.13
-267.38
-57.63
152.13
4.0% 5.0%
220.12 -16.28
-21.18 -257.58
-262.48 -498.88
-503.78 -740.18
-745.08 -981.48
-986.38 -1,222.78
-1,227.68 -1,464.08
11 12 13 14 15 16
11 59 19 10 4 11
92 91 91 67 118 136
25 40 77 92 108 95
67 73 53 25 23 16
90 90 90
60 48 36

58 67 61 49 63 65
11.14% 12.95% 11.82% 9.40% 12.26% 12.50%

1997 1998 1999 2000 2001 2002

140 111 111 102 92 92


$137.92 $142.05 $146.32 $150.71 $155.23 $159.88
19,244.23 15,737.95 16,257.35 15,333.42 14,289.29 14,717.97

15,202.94 12,275.60 12,518.16 11,653.40 10,859.86 11,038.48


4,041.29 3,462.35 3,739.19 3,680.02 3,429.43 3,679.49

90.95 82.72 77.75 75.63 75.00 75.00


769.77 629.52 650.29 613.34 571.57 588.72
3,180.57 2,750.11 3,011.14 2,991.06 2,782.86 3,015.77
577.33 472.14 487.72 460.00 428.68 441.54

2,603.24 2,277.97 2,523.42 2,531.05 2,354.18 2,574.23


885.10 774.51 857.96 860.56 800.42 875.24
1,718.14 1,503.46 1,665.46 1,670.49 1,553.76 1,698.99
19.24 15.74 16.26 15.33 14.29 14.72
90.95 82.72 77.75 75.63 75.00 75.00
(17.12) (343.62) 50.90 (90.54) (102.33) 42.01
1,806.97 1,914.06 1,676.05 1,821.34 1,716.79 1,717.27
504.29 445.15 324.83 294.16 231.06 192.6

1997 1998 1999 2000 2001 2002


212.58 191.32 171.32 151.32 131.32 111.32
21.26 20.00 20.00 20.00 20.00 20.00
208.68 228.68 248.68 268.68 288.68 308.68
354.29 318.86 286.98 256.98 226.98 196.98
35.43 31.89 30.00 30.00 30.00 30.00
281.14 313.02 343.02 373.02 403.02 433.02
196.83 177.15 159.43 143.49 128.49 113.49
19.68 17.71 15.94 15.00 15.00 15.00
122.85 140.57 156.51 171.51 186.51 201.51
145.80 131.22 118.10 106.29 95.66 85.66
14.58 13.12 11.81 10.63 10.00 10.00
68.78 81.90 93.71 104.34 114.34 124.34

90.95 82.72 77.75 75.63 75.00 75.00


17 18 19 20
21 7 9 8
131 94 26 11
82 67 115 141
24 35 23 24

sum of avg of yrs 11-20 566


65 51 43 46
12.50% 9.84% 8.38% 8.91%

2003 2004 2005 2006 2007 2008

105 89 111 130 118 94


$164.68 $169.62 $174.71 $179.95 $185.35 $190.91
17,233.97 15,066.42 19,468.56 23,307.53 21,911.40 17,944.00

12,925.47 11,299.82 16,548.27 18,879.10 17,310.01 13,996.32


4,308.49 3,766.61 2,920.28 4,428.43 4,601.39 3,947.68

99.46 121.48 116.83 112.65 100.20 129.20


689.36 602.66 778.74 932.30 876.46 717.76
3,519.67 3,042.47 2,024.71 3,383.48 3,624.73 3,100.72
517.02 451.99 584.06 699.23 657.34 538.32

3,002.65 2,590.47 1,440.65 2,684.25 2,967.39 2,562.40


1,020.90 880.76 489.82 912.65 1,008.91 871.22
1,981.75 1,709.71 950.83 1,771.61 1,958.48 1,691.19
244.64 244.64 19.47 23.31 21.91 567.22
99.46 121.48 116.83 112.65 100.20 129.20
246.57 (212.42) 431.41 376.22 (136.82) (388.81)
1,590.00 1,798.97 616.79 1,484.73 2,173.59 1,641.97
148.61 140.12 40.03 80.31 97.97 61.67

2003 2004 2005 2006 2007 2008


91.32 71.32 51.32 31.32 11.32 0.00
20.00 20.00 20.00 20.00 11.32 0.00
328.68 348.68 368.68 388.68 400.00 400.00
166.98 136.98 106.98 76.98 46.98 16.98
30.00 30.00 30.00 30.00 30.00 16.98
463.02 493.02 523.02 553.02 583.02 600.00
98.49 83.49 68.49 53.49 38.49 23.49
15.00 15.00 15.00 15.00 15.00 15.00
216.51 231.51 246.51 261.51 276.51 291.51
75.66 65.66 55.66 45.66 35.66 25.66
10.00 10.00 10.00 10.00 10.00 10.00
134.34 144.34 154.34 164.34 174.34 184.34
244.64 220.18 198.16 178.35 160.51 144.46
24.46 22.02 19.82 17.83 16.05 14.45
24.46 46.48 66.30 84.13 100.18 114.63
244.64 220.18 198.16 178.35 160.51
24.46 22.02 19.82 17.83 16.05
24.46 46.48 66.30 84.13 100.18
567.22
56.72
56.72

99.46 121.48 116.83 112.65 100.20 129.20


2009 2010 2011 2012 2013 2014

123 125 125 98 84 89


$196.64 $202.54 $208.61 $214.87 $221.32 $227.96
24,103.23 25,316.97 26,076.48 21,133.07 18,550.25 20,321.64

20,487.75 20,506.75 20,600.42 16,483.79 14,283.69 15,444.45


3,615.49 4,810.22 5,476.06 4,649.27 4,266.56 4,877.19

96.99 76.84 65.81 61.68 57.96 54.61


964.13 1,012.68 1,043.06 845.32 742.01 812.87
2,554.37 3,720.71 4,367.19 3,742.27 3,466.59 4,009.72
723.10 759.51 782.29 633.99 556.51 609.65

1,831.27 2,961.20 3,584.89 3,108.28 2,910.08 3,400.07


622.63 1,006.81 1,218.86 1,056.82 989.43 1,156.02
1,208.64 1,954.39 2,366.03 2,051.46 1,920.65 2,244.05
24.10 25.32 26.08 21.13 18.55 20.32
96.99 76.84 65.81 61.68 57.96 54.61
603.60 118.95 74.43 (484.45) (253.12) 173.60
677.92 1,886.97 2,331.34 2,576.47 2,213.18 2,104.74
21.22 49.22 50.68 46.67 33.41 26.48

2009 2010 2011 2012 2013 2014


0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
400.00 400.00 400.00 400.00 400.00 400.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
600.00 600.00 600.00 600.00 600.00 600.00
8.49 0.00 0.00 0.00 0.00 0.00
8.49 0.00 0.00 0.00 0.00 0.00
300.00 300.00 300.00 300.00 300.00 300.00
15.66 5.66 0.00 0.00 0.00 0.00
10.00 5.66 0.00 0.00 0.00 0.00
194.34 200.00 200.00 200.00 200.00 200.00
130.01 117.01 104.78 92.55 80.32 68.08
13.00 12.23 12.23 12.23 12.23 12.23
127.63 139.86 152.10 164.33 176.56 188.79
144.46 130.01 117.01 104.78 92.55 80.32
14.45 13.00 12.23 12.23 12.23 12.23
114.63 127.63 139.86 152.10 164.33 176.56
510.50 459.45 413.50 372.15 334.94 301.44
51.05 45.94 41.35 37.22 33.49 30.14
107.77 153.72 195.07 232.28 265.78 295.92

96.99 76.84 65.81 61.68 57.96 54.61


2015 2016 2017 2018 2019 2020

89 89 89 89 89 89
$234.79 $241.84 $249.09 $256.57 $264.26 $272.19
20,931.29 21,559.23 22,206.00 22,872.18 23,558.35 24,265.10

15,907.78 16,385.01 16,876.56 17,382.86 17,904.35 18,441.48


5,023.51 5,174.21 5,329.44 5,489.32 5,654.00 5,823.62

52.83 52.83 52.83 52.83 47.52 35.28


837.25 862.37 888.24 914.89 942.33 970.60
4,133.43 4,259.02 4,388.38 4,521.61 4,664.15 4,817.74
627.94 646.78 666.18 686.17 706.75 727.95

3,505.49 3,612.24 3,722.20 3,835.45 3,957.40 4,089.78


1,191.87 1,228.16 1,265.55 1,304.05 1,345.52 1,390.53
2,313.63 2,384.08 2,456.65 2,531.39 2,611.89 2,699.26
20.93 21.56 22.21 22.87 23.56 24.27
52.83 52.83 52.83 52.83 47.52 35.28
59.75 61.54 63.38 65.29 67.24 69.26
2,285.77 2,353.81 2,423.88 2,496.06 2,568.60 2,641.01
23.96 20.56 17.64 15.14 12.98 11.13

2015 2016 2017 2018 2019 2020


0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
400.00 400.00 400.00 400.00 400.00 400.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
600.00 600.00 600.00 600.00 600.00 600.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
300.00 300.00 300.00 300.00 300.00 300.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
200.00 200.00 200.00 200.00 200.00 200.00
55.85 43.62 31.39 19.15 6.92 0.00
12.23 12.23 12.23 12.23 6.92 0.00
201.03 213.26 225.49 237.72 244.64 244.64
68.08 55.85 43.62 31.39 19.15 6.92
12.23 12.23 12.23 12.23 12.23 6.92
188.79 201.03 213.26 225.49 237.72 244.64
271.30 242.94 214.58 186.22 157.86 129.49
28.36 28.36 28.36 28.36 28.36 28.36
324.28 352.64 381.00 409.37 437.73 466.09

52.83 52.83 52.83 52.83 47.52 35.28


2021 2022 2023 2024

89 89 89 89
$280.36 $288.77 $297.43 $306.35
24,993.05 25,742.85 26,515.13 27,310.58

18,994.72 19,564.56 20,151.50 20,756.04


5,998.33 6,178.28 6,363.63 6,554.54

28.36 28.36 28.36 16.05


999.72 1,029.71 1,060.61 1,092.42
4,970.25 5,120.21 5,274.67 5,446.07
749.79 772.29 795.45 819.32

4,220.46 4,347.92 4,479.21 4,626.75


1,434.96 1,478.29 1,522.93 1,573.09
2,785.50 2,869.63 2,956.28 3,053.65
24.99 25.74 26.52 27.31
28.36 28.36 28.36 16.05
71.34 73.48 75.68 77.95
2,717.53 2,798.77 2,882.44 2,964.44
9.54 8.19 7.03 6.02

2021 2022 2023 2024


0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00
400.00 400.00 400.00 400.00
0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00
600.00 600.00 600.00 600.00
0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00
300.00 300.00 300.00 300.00
0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00
200.00 200.00 200.00 200.00
0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00
244.64 244.64 244.64 244.64
0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00
244.64 244.64 244.64 244.64
101.13 72.77 44.41 16.05
28.36 28.36 28.36 16.05
494.45 522.81 551.17 567.22

28.36 28.36 28.36 16.05


Graph

Cumulative Project Cash Flows


Undiscounted and Discounted

12

10

8
Billions of U.S. Dollars

0
Year of Project Life

Page 27