I.

Market Information
T.Bond Rate =
Market Risk Premium =

Market Price
Number of Shares

5.00%
5.50%

Maturity of Debt

Maturity

Boeing
32.25
1010.7

Bottom-up Beta
0.88
II. Accounting Information
Tax Rate
35%
Debt Details
Average Maturity of Debt
Rating approach used
Current Rating
Current Interest rate

13.76
C
AA
5.50%

(Current or Synthetic)

Operating Lease Expense

Boeing
Current Year
$
215
Expected in
$205.00
Year 1
$167.00
Year 2
$120.00
Year 3
$86.00
Year 4
$61.00
Year 5
Years 6->
0
Non-cash Interest Expens $

28

Debt
1
2
3
4
5
7
8
10
14
23
26
27
33
44
45

311
200
252
417
799
648
423
1129
348
398
300
247
421
100
298
6291

WeightedMaturity
0.05
0.06
0.12
0.27
0.64
0.72
0.54
1.79
0.77
1.46
1.24
1.06
2.21
0.70
2.13
13.76

WeightedMaturity

This year

Last year

Assets
Fixed Assets
Goodwill
Investments and Notes Receivable
Deferred Income Taxes
Prepaid Pension Expense
Customer Financing
Other Assets
Current Assets
Cash
Short-term Marketable Investments
Accounts Receivables
Current Portion of Customer Financin
Deferred Income Taxes
Inventories
Other Current Assets
Total Current Assets
Total Assets

$8,589
$2,312
$411
$3,513
$4,930
$542
$2,183
$279
$3,288
$781
$1,495
$8,349
$0
$16,375
$36,672

1955
246

38024

Liabilities and Equity

Current Liabilities
Accounts Payable & other liabilities
Accrued Salaries and Expenses
Advances in excess of costs
Taxes payable
Short term debt and Current LT debt
Total Current Liabilities
Accrued Health Care Benefits
Other Long Term Liabilities
Deferred Income Taxes
Long-term Debt
Minority Interests
Shareholder's Equity
Par Value
Additional Paid-in Capital
Retained Earnings
- Other Adjustments
- Trust Shares
- Treasury Stock
Total Shareholder's Equity
Total Liabilities

$10,733
$1,251
$569
$869
$13,422
$4,831

$731

$6,103

$6,123

$5,059
$0
$7,257
$0
$0
$0
$12,316
$36,672

$12,953

Sales & Other Operating Revenues

- Operating Costs & Expenses
- Depreciation
- Research and Development Expenses
- Special Charges
Operating Income
+ Other Income (Includes Interest Incom
- Interest Expenses
+ Minority Interest
Earnings before Taxes
- Income Taxes
Net Earnings (Loss)
Number of Shares outstanding
Earnings Per Share
Basic
Diluted

$56,154.00
$51,022.00
$1,517.00
$1,895.00
$0.00
$1,720.00
$130.00
$453.00
$1,397.00
$277.00
$1,120.00

$1.15
$1.15

Operating Income
+ Special and One-time Charges
+ Research and Development Expenses
- Amortization of Research Asset
+ Imputed Interest Expense on Operatin $
= Adjusted Operating Income

$1,720
$0
$1,895
$1,382
31
$2,264

Operating Income (1-t)

+ Special and One-time Charges (1-t)
+ Research and Development Expenses
- Amortization of Research Asset
+ Imputed Interest Expense (1- t)
= Adjusted Operating Income

$1,118
$0
$1,895
$1,382
$20
$1,651

Net Income
+ Special and One-time Charges (1-t)
+ R & D expenses
- Amortization of Research Asset
+ Operating Lease Expenses (1-t)
- Imputed Interest Expense (1-t)
- Depreciation (1-t)
= Adjusted Net Income

$1,120
$0
$1,895
$1,382
$140
$20
$120
$1,633

Tax Benefit of Expensing

Adjusted After-tax Operating Income
Adjusted Operating Income (1 - t)
Tax Benefit of Expensing

$1,651
$1,472
$180

Cash Flows - Operations

Net Income
$
+ Non-cash Charges
Depreciation
$
Deferred Income Tax Expense
Amortization of Goodwill
$
Special Charges
$
Share Value Trust
$
- Changes in assets and liabilities
Short-term investments
$
Accounts Receivable
$
Inventories
$
Accounts Payable
$
Advances in excess of costs
$
Taxes Payable
$
Other assets
$
Accrued Health Care Benefits
$
Net Cash from Operations
$
Cash Flows - Investing
Customer and Commercial Financ $
Property, Plant & Equipment
$
Investments
Other
$
Net Cash From Investing
$
Cash Flows - Financing
New Borrowings
Debt Repayments
Common Shares purchased
Common Shares issued
Stock Options Exercised
Dividends Paid
Minority Interest Contribution
Net Cash from Financing

1,120
1,517
104
(99)
154
(251)
(1,008)
1,490
(139)
(451)
(272)
(4)
2,161

(859)
(1,584)
(2,443)

$
$
$
$
$
$

232
(867)
(141)
268
166
(557)

(899)

Net Increase in Cash and Equival $

(1,181)

CostofCapitalComputations
I. Estimated Market Value of Equity
Number of Shares Outstanding
Current Stock Price (9/30/98)
Market Value of Equity

$
$

1010.7
32.25
32,595

II. Estimated Market Value of Debt

Book Value of Debt
$6,972
Interest Expenses
$453.00
Average Maturity
13.76
Market Interest Rate (based on rating
5.50%
Market Value of Debt
$
7,631
Present Value of Operating Leases
$
563
Total Market Value of Debt
$
8,194
III. Debt Ratios
Debt/Equity
Debt/Equity (w/o operating leases)
Debt/ (Debt + Equity)

25.14%
23.41%
20.09%

IV. Cost of Equity

Bottom-up Unlevered Beta
Bottom-up Beta
Riskfree Rate
Risk Premium
Cost of Equity

0.88
1.014
5.00%
5.50%
10.58%

V. Cost of Debt
Bond Rating
Default Spread over treasury
Market Interest Rate
Marginal tax rate
Cost of Debt
VI.
Cost of Equity
Equity/(Debt + Equity)
Cost of Debt
Debt/(Debt + Equity)
Cost of Capital

AA
0.50%
5.50%
35%
3.58%

10.58%
79.91%
3.58%
20.09%
9.17%

EBIT
Interest Expense
Interest Coverage Ratio
EBIT
Operating Lease Expenses
Interest Expenses
Fixed Charge Coverage Rati

Boeing
$
1,720
$
453
3.80
$
$
$

1,720
215
453
2.90

EBITDA
$
Cash Fixed Charges
$
Cash Fixed Charge Coverage

3,341
640
5.22

Cash Flows from Operations $

Capital Expenditures
$
CF/Cap Ex

2,161
1,584
1.36

Current Assets
Current Liabilities
Current Ratio

$
$

16,375
13,422
1.22

Cash & Marketable Securities $

Current Liabilities
$
Quick Ratio

2,462
13,422
0.18

Sales
$
Accounts Receivable
$
Accounts Receivable Turnover
Days Receivable

56,154
3,288
17.08
21.37

Cost of Goods Sold

Inventory
Inventory Turnover
Days Inventory Held

$
$

51,022
8,349
6.11
59.73

Purchases
Accounts Payable
Accounts Payable Turnover
Days Accounts Payable

$
$

51,022
10,733
4.75
76.78

Required Financing Period

4.32

Return on Capital
Cost of Capital
ROC - Cost of Capital
Book Value of Capital
EVA

6.96%
9.17%
-2.21%
$23,731
($525)

Return on Equity
Cost of Equity
ROE - Cost of Equity
Book Value of Equity
Equity EVA

7.58%
10.58%
-2.99%
$21,540
($645)

OperatingLeaseConverter

Inputs
Operatingleaseexpenseincurrentyear=
OperatingLeaseCommitments(Fromfootnotetofinancials)
Year
1
2
3
4
5
6andbeyond

$215.00
Commitment !Year1isnextyear,.
$205.00
$167.00
$120.00
$86.00
$61.00
$

PretaxCostofDebt=

5.50%

!Thisnumbercomesfromyourratingesestimatorworksheet

Fromthecurrentfinancialstatements,enterthefollowing
ReportedOperatingIncome(EBIT)=
ReportedDepreciation=
ReportedInterestExpense=
ReportedDebt=

$1,720.00
$1,517.00
$453.00
$6,972

!ThisistheEBITreportedinthecurrentincomestatement
!Thisisthedepreciationreportedinthestatementofcashflows
!Thisisthetotalinterestexpensereportedintheincomestatement
!Thisistheinterestbearingdebtreportedonthebalancesheet

Output
Numberofyearsembeddedinyr6estimate=
Year

1
2
3
4
5

6andbeyond
DebtValue=
RestatedFinancials
OperatingIncomewithOperatingleasesreclassifiedasdebt=
DebtwithOperatingleasesreclassifiedasdebt=
Interest Expense with Operating Lease reclassified as debt =
Imputed Interest Expense on Operating Lease debt

0
!Iusetheaverageleaseexpenseoverthefirstfiveyears
toestimatethenumberofyearsofexpensesinyr6
PresentValue
$194.31
$150.04
$102.19
$69.42
$46.67
$ !Commitmentbeyondyear6convertedintoanannuityfortenyears
$562.64

$1,750.95
$7,534.64
$483.95
$

30.95

Long Term Debt

Short Term Debt
BV of Equity

Unadjusted
$6,103
$869
$12,316

Adjusted
$6,666
$869
$21,416

LT Debt/Equity
LT Debt / (LT Debt + Equity)

49.55%
33.13%

31.12%
23.74%

Debt/Equity
Debt/ (Debt + Equity)

56.61%
36.15%

35.18%
26.03%

Estimated Market Value

Debt (not operating leases)
PV of operating leases
Market Value of Debt
Market Value of Equity
Debt/Equity (MV)
Market Debt/Capital
Interest Expense
Maturity
Market Interest Rate

$7,631
562.64
$8,194
$32,595
25.14%
20.09%
$453.00
13.76
5.50%

R&DConverter

ThisspreadsheetconvertsR&Dexpensesfromoperatingtocapitalexpenses.Itmakestheappropriateadjustmentstooperatingincome,net
income,thebookvalueofassetsandthebookvalueofequity.
Inputs
OverhowmanyyearsdoyouwanttoamortizeR&Dexpenses

10

!Ifindoubt,usethelookuptablebelow
Themaximumallowedistenyears
EnterR&Dexpensesforpastyears:thenumberofyearsthatyouwillneedtoenterwillbedeterminedbytheamortizationperiod
Donotinputnumbersinthefirstcolumn(Year).Itwillgetautomaticallyupdatedbasedontheinputabove.
Year
1
2
3
4
5
6
7
8
9
10
11
Output
Year
1
2
3
4
5
6
7
8
9
10

ReseachAssetthisyear
R&DExpense
Unamortizedportion
1895.00
1.00
1895.00
1924.00
0.90
1731.60
1633.00
0.80
1306.40
1300.00
0.70
910.00
1704.00
0.60
1022.40
1661.00
0.50
830.50
1846.00
0.40
738.40
1417.00
0.30
425.10
827.00
0.20
165.40
754.00

0.10

75.40

ValueofResearchAsset=

R&DExpenses
1895.00
!Year1isthemostrecentfinancialyear
1924.00
!Year2istheyearbeforethemostrecentfinan
1633.00
1300.00
1704.00
1661.00
1846.00
1417.00
827.00
754.00
751.00

ReseachAssetlastyear
R&DExpense
Unamortizedportion
1924.00
1.00
1924.00
1633.00
0.90
1469.70
1300.00
0.80
1040.00
1704.00
0.70
1192.80
1661.00
0.60
996.60
1846.00
0.50
923.00
1417.00
0.40
566.80
827.00
0.30
248.10
754.00
0.20
150.80
751.00

0.10

$9,100.20

75.10

$8,586.90

Boeing

Amortizationofassetforcurrentyear=

$1,381.70

AdjustmenttoOperatingIncome=

$513.30 !Apositivenumberindicatesanincreaseinoperatingincome(addtoreport

A negative number indicates a decrease in operating income (sub

Look Up Table for Amortization Periods

IndustryName AmortizationPeriod
Advertising
2
Aerospace/Defe
10
AirTransport
10
Aluminum
5
Apparel
3
Auto&Truck
10

NontechnologicalService
Retail,TechService
LightManufacturing
HeavyManufacturing
Research,withPatenting

2years
3years
5years
10years
10years

AutoParts(O
AutoParts(Re
Bank
Bank(Canadian
Bank(Foreign)
Bank(Midwest
Beverage(Alco
Beverage(Soft
BuildingMateri
CableTV
CanadianEner
Cement&Aggr
Chemical(Basi
Chemical(Diver
Chemical(Speci
Coal/Alternate
Computer&Per
ComputerSoft
Copper
DiversifiedCo.
Drug
Drugstore
EducationalSer
ElectricUtil.(
ElectricUtility
ElectricUtility
ElectricalEqui
Electronics
Entertainment
Environmental
FinancialServi
FoodProcessin
FoodWholesale
ForeignElectro
ForeignTeleco
Furn./HomeFur
Gold/SilverMi
Grocery
HealthcareInf
HomeApplianc
Homebuilding
Hotel/Gaming
HouseholdProd
IndustrialServi
Insurance(Dive
Insurance(Life
Insurance(Prop
Internet
InvestmentCo.
InvestmentCo.
InvestmentCo.
Machinery
Manuf.Housin

5
5
2
2
2
2
3
3
5
10
10
10
10
10
10
5
5
3
5
5
10
3
3
10
10
10
10
5
3
5
2
3
3
5
10
3
5
2
3
5
5
3
3
3
3
3
3
3
3
3
3
10
5

LongGestationPeriod

10years

Maritime
MedicalServic
MedicalSuppli
MetalFabricati
Metals&Minin
NaturalGas(Dis
NaturalGas(Di
Newspaper
OfficeEquip&
OilfieldServic
Packaging&Co
Paper&Forest
Petroleum(Inte
Petroleum(Pro
PrecisionInstr
Publishing
R.E.I.T.
Railroad
Recreation
Restaurant
Retail(Special
RetailBuilding
RetailStore
SecuritiesBrok
Semiconductor
Semiconductor
Shoe
Steel(General)
Steel(Integrate
Telecom.Equi
Telecom.Servi
Textile
Thrift
Tire&Rubber
Tobacco
Toiletries/Cosm
Trucking/Trans
Utility(Foreign
WaterUtility

10
3
5
10
5
10
10
3
5
5
5
10
5
5
5
3
3
5
5
2
2
2
2
2
5
5
3
5
5
10
5
5
2
5
5
3
5
10
10

riateadjustmentstooperatingincome,net

Ifindoubt,usethelookuptablebelow
hemaximumallowedistenyears
minedbytheamortizationperiod

Year1isthemostrecentfinancialyear
Year2istheyearbeforethemostrecentfinancialyear

Amortization
192.40
163.30
130.00
170.40
166.10
184.60
141.70
82.70
75.40
75.10
1381.70

increaseinoperatingincome(addtoreportedEBIT)

s a decrease in operating income (subtract from reported EBIT)

$751
$754
$827
$1,417
$1,846
$1,661
$1,704
$1,300

$1,633
$1,924
$1,895

Margins
Net Income
Sales
Net Margin

1120
56,154
1.99%

Operating Income
Sales
Operating Margin

$
$

1,720
56,154
3.06%

After-tax Operating Income

Sales
After-tax Operating Margin

$
$

1,118
56,154
1.99%

Return Ratios
Net Income
BV of Equity- Beginning
BV of Equity- Ending
BV of Equity - Average
ROE (based on average)
ROE (based on beginning)
After-tax ROC
Debt/Equity Ratio
Book Interest Rate (1-tax rate)
ROE
After-tax Operating Income
BV of Capital - Beginning
BV of Capital - Ending
BV of Capital - Average
ROC (based on average)
ROC (based on beginning)
Operating Income
BV of Assets - Beginning
BV of Assets - Ending
BV of Assets - Average
ROA (based on average)
ROA (based on beginning)

Unadjusted Adjusted
$1,120
$1,633
$12,953
$21,540
$12,316
$21,416
$12,635
$21,478
8.86%
7.60%
8.65%
7.58%
Ratios
6.96%
35.18%
4.22%
7.92%
Unadjusted
Adjusted
$1,118
$1,651
$17,345
$23,731
$19,288
$28,951
$18,317
$26,341
6.10%
6.27%
6.45%
6.96%
Unadjusted
Adjusted
$
1,118 $
1,651
$
38,024 $
38,024
$
36,672 $
36,672
$
37,348 $
37,348
2.99%
4.42%
2.94%
4.34%

Capital Adjustment
Book Value of Capital
+ One-time Charge
+ Present Value of Operating Lease $
+ Capitalized value of research asse
= Adjusted Book Value of Capital

EBITDA/Firm Value

$19,288
$0
562.64
$9,100
$28,951

7.94%

Current Assets
Current Liabilities
Working Capital
Non-cash Current Assets
Inventory
Accounts Receivable
Non-cash Current Liabilities
Accounts Payables
Other Current Liabilities
Non-cash Working Capital

$16,375
$13,422
$2,953

$8,349
$5,564
$10,733
$1,820
$1,360

Inputsforsyntheticratingestimation
Enterthetypeoffirm=
EntercurrentEarningsbeforeinterestandtaxes(EBIT)=
Entercurrentinterestexpenses=
Output
Interestcoverageratio=
EstimatedBondRating=
EstimatedDefaultSpread=
EstimatedCostofDebt=
Forlargemanufacturingfirms
Ifinterestcoverageratiois
>
to
Ratingis
100000
0.199999
D
0.2
0.649999
C
0.65
0.799999
CC
0.8
1.249999
CCC
1.25
1.499999
B
1.5
1.749999
B
1.75
1.999999
B+
2
2.499999
BB
2.5
2.999999
BBB
3
4.249999
A
4.25
5.499999
A
5.5
6.499999
A+
6.5
8.499999
AA
8.50
100000
AAA

Spreadis
14.00%
12.70%
11.50%
10.00%
8.00%
6.50%
4.75%
3.50%
2.25%
2.00%
1.80%
1.50%
1.00%
0.75%

Forsmallerandriskierfirms
Ifinterestcoverageratiois
greaterthan
to
100000
0.499999
0.5
0.799999
0.8
1.249999
1.25
1.499999
1.5
1.999999
2
2.499999
2.5
2.999999
3
3.499999
3.5
4.499999
4.5
5.999999
6
7.499999
7.5
9.499999
9.5
12.499999
12.5
100000

Spreadis
14.00%
12.70%
11.50%
10.00%
8.00%
6.50%
4.75%
3.50%
2.25%
2.00%
1.80%
1.50%
1.00%
0.75%

Ratingis
D
C
CC
CCC
B
B
B+
BB
BBB
A
A
A+
AA
AAA

Boeing

1
$1,935.00
$668.00

Home Depot

(Enter1iflargemanufacturingfirm,2ifsm
(Forinitialestimate,Iaddedbackalloperat
(Forinitialestimate,Iaddedbackalloperat

2.90
BBB
2.25%
7.25%

Forfinancialservicefirms
Iflongterminterestcoverageratiois
greaterthan
to
100000
0.049999
0.05
0.099999
0.1
0.199999
0.2
0.299999
0.3
0.399999
0.4
0.499999
0.5
0.599999
0.6
0.799999
0.8
0.999999
1
1.49999
1.5
1.99999
2
2.49999
2.5
2.99999
3
100000

Infosoft

Enter1iflargemanufacturingfirm,2ifsmallerorriskierfirm,3iffinancialservicefirm)
Forinitialestimate,Iaddedbackalloperatingleaseexpenses)
Forinitialestimate,Iaddedbackalloperatingleaseexpensestointerestexpense)

estcoverageratiois
Ratingis
D
C
CC
CCC
B
B
B+
BB
BBB
A
A
A+
AA
AAA

Spreadis
OperatingIncomeDecline
14.00%
50.00%
12.70%
40.00%
11.50%
40.00%
10.00%
40.00%
8.00%
25.00%
6.50%
20.00%
4.75%
20.00%
3.50%
20.00%
2.25%
20.00%
2.00%
17.50%
1.80%
15.00%
1.50%
10.00%
1.00%
5.00%
0.75%
0.00%