Cost of Capital
Boeing's weighted-average cost of capital (WACC) could be estimated using the following well-known formula:
WACC=(percent Debt)(rd)(l-tc)+(percent Equity)(re)
Where:
Rd = Pretax cost of debt capital
Tc = Marginal effective Corporate tax rate
Percent Debt = Proportion of debt in a market-value capital structure
re = Cost of equity capital
Percent Equity = proportion of equity in a market-value capital structure
Exhibit 10 gives information about betas and debt/equity ratios for Boeing and comparable companies. Exhibit 11 provides data about Boeing's outstanding debt issues. While Boeing's marginal effective tax rate had been smaller in the past, it currently was expected to be 35 percent. In June 2003, the yield on the three-month U.S. Treasury bill was 0.85 percent, and the yield on the 30-year Treasury bond was 4.56 percent. On June 16, 2003, Boeing's stock price closed at $36.41.