I.

Market Information
T.Bond Rate = 5.00% Maturity of Debt
Market Risk Premium = 5.50% Maturity Debt WeightedMaturity
1 311 0.05
Boeing 2 200 0.06
Market Price 32.25 3 252 0.12
Number of Shares 1010.7 4 417 0.27
5 799 0.64
Bottom-up Beta 0.88 7 648 0.72
II. Accounting Information 8 423 0.54
Tax Rate 35% 10 1129 1.79
14 348 0.77
Debt Details 23 398 1.46
Average Maturity of Debt 13.76 26 300 1.24
Rating approach used C (Current or Synthetic) 27 247 1.06
Current Rating AA 33 421 2.21
Current Interest rate 5.50% 44 100 0.70
45 298 2.13
Operating Lease Expense Boeing 6291 13.76
Current Year $ 215
Expected in
Year 1 $205.00
Year 2 $167.00
Year 3 $120.00
Year 4 $86.00
Year 5 $61.00
Years 6-> 0

Non-cash Interest Expens $ 28

WeightedMaturity
 This year Last year
Assets
Fixed Assets $8,589
Goodwill $2,312
Investments and Notes Receivable
Deferred Income Taxes $411
Prepaid Pension Expense $3,513
Customer Financing $4,930
Other Assets $542
Current Assets
Cash $2,183 1955
Short-term Marketable Investments $279 246
Accounts Receivables $3,288
Current Portion of Customer Financin $781
Deferred Income Taxes $1,495
Inventories $8,349
Other Current Assets $0
Total Current Assets $16,375
Total Assets $36,672 38024

Liabilities and Equity

Current Liabilities
Accounts Payable & other liabilities $10,733
Accrued Salaries and Expenses
Advances in excess of costs $1,251
Taxes payable $569
Short term debt and Current LT debt $869 $731
Total Current Liabilities $13,422
Accrued Health Care Benefits $4,831
Other Long Term Liabilities
Deferred Income Taxes
Long-term Debt $6,103 $6,123
Minority Interests
Shareholder's Equity
Par Value $5,059
Additional Paid-in Capital $0
Retained Earnings $7,257
- Other Adjustments $0
- Trust Shares $0
- Treasury Stock $0
Total Shareholder's Equity $12,316 $12,953
Total Liabilities $36,672
Sales & Other Operating Revenues $56,154.00
- Operating Costs & Expenses $51,022.00
- Depreciation $1,517.00
- Research and Development Expenses $1,895.00
- Special Charges $0.00
Operating Income $1,720.00
+ Other Income (Includes Interest Incom $130.00
- Interest Expenses $453.00
+ Minority Interest
Earnings before Taxes $1,397.00
- Income Taxes $277.00
Net Earnings (Loss) $1,120.00
Number of Shares outstanding
Earnings Per Share
Basic $1.15
Diluted $1.15

Operating Income $1,720

+ Special and One-time Charges $0
+ Research and Development Expenses $1,895
- Amortization of Research Asset $1,382
+ Imputed Interest Expense on Operatin $ 31
= Adjusted Operating Income $2,264

Operating Income (1-t) $1,118

+ Special and One-time Charges (1-t) $0
+ Research and Development Expenses $1,895
- Amortization of Research Asset $1,382
+ Imputed Interest Expense (1- t) $20
= Adjusted Operating Income $1,651

Net Income $1,120

+ Special and One-time Charges (1-t) $0
+ R & D expenses $1,895
- Amortization of Research Asset $1,382
+ Operating Lease Expenses (1-t) $140
- Imputed Interest Expense (1-t) $20
- Depreciation (1-t) $120
= Adjusted Net Income $1,633

Tax Benefit of Expensing

Adjusted After-tax Operating Income $1,651
Adjusted Operating Income (1 - t) $1,472
Tax Benefit of Expensing $180
Cash Flows - Operations
Net Income $ 1,120
+ Non-cash Charges
Depreciation $ 1,517
Deferred Income Tax Expense
Amortization of Goodwill $ 104
Special Charges $ -
Share Value Trust $ (99)
- Changes in assets and liabilities
Short-term investments $ 154
Accounts Receivable $ (251)
Inventories $ (1,008)
Accounts Payable $ 1,490
Advances in excess of costs $ (139)
Taxes Payable $ (451)
Other assets $ (272)
Accrued Health Care Benefits $ (4)
Net Cash from Operations $ 2,161

Cash Flows - Investing

Customer and Commercial Financ $ (859)
Property, Plant & Equipment $ (1,584)
Investments
Other $ -
Net Cash From Investing $ (2,443)

Cash Flows - Financing

New Borrowings $ 232
Debt Repayments $ (867)
Common Shares purchased $ (141)
Common Shares issued $ 268
Stock Options Exercised $ 166
Dividends Paid $ (557)
Minority Interest Contribution
Net Cash from Financing $ (899)

Net Increase in Cash and Equival $ (1,181)

CostofCapitalComputations
I. Estimated Market Value of Equity
Number of Shares Outstanding 1010.7
Current Stock Price (9/30/98) $ 32.25
Market Value of Equity $ 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 25.14%
Debt/Equity (w/o operating leases) 23.41%
Debt/ (Debt + Equity) 20.09%

IV. Cost of Equity

Bottom-up Unlevered Beta 0.88
Bottom-up Beta 1.014
Riskfree Rate 5.00%
Risk Premium 5.50%
Cost of Equity 10.58%

V. Cost of Debt
Bond Rating AA
Default Spread over treasury 0.50%
Market Interest Rate 5.50%
Marginal tax rate 35%
Cost of Debt 3.58%

VI.
Cost of Equity 10.58%
Equity/(Debt + Equity) 79.91%
Cost of Debt 3.58%
Debt/(Debt + Equity) 20.09%
Cost of Capital 9.17%
 Boeing
EBIT $ 1,720
Interest Expense $ 453
Interest Coverage Ratio 3.80

EBIT $ 1,720
Operating Lease Expenses $ 215
Interest Expenses $ 453
Fixed Charge Coverage Rati 2.90

EBITDA $ 3,341
Cash Fixed Charges $ 640
Cash Fixed Charge Coverage 5.22

Cash Flows from Operations $ 2,161

Capital Expenditures $ 1,584
CF/Cap Ex 1.36
Current Assets $ 16,375
Current Liabilities $ 13,422
Current Ratio 1.22

Cash & Marketable Securities $ 2,462

Current Liabilities $ 13,422
Quick Ratio 0.18

Sales $ 56,154
Accounts Receivable $ 3,288
Accounts Receivable Turnover 17.08
Days Receivable 21.37

Cost of Goods Sold $ 51,022

Inventory $ 8,349
Inventory Turnover 6.11
Days Inventory Held 59.73

Purchases $ 51,022
Accounts Payable $ 10,733
Accounts Payable Turnover 4.75
Days Accounts Payable 76.78

Required Financing Period 4.32

Return on Capital 6.96%
Cost of Capital 9.17%
ROC - Cost of Capital -2.21%
Book Value of Capital $23,731
EVA ($525)

Return on Equity 7.58%

Cost of Equity 10.58%
ROE - Cost of Equity -2.99%
Book Value of Equity $21,540
Equity EVA ($645)
 OperatingLeaseConverter
Inputs
Operatingleaseexpenseincurrentyear= $215.00
OperatingLeaseCommitments(Fromfootnotetofinancials)
Year Commitment !Year1isnextyear,.
1 $205.00
2 $167.00
3 $120.00
4 $86.00
5 $61.00
6andbeyond $

PretaxCostofDebt= 5.50% !Thisnumbercomesfromyourratingesestimatorworksheet

Fromthecurrentfinancialstatements,enterthefollowing
ReportedOperatingIncome(EBIT)= $1,720.00 !ThisistheEBITreportedinthecurrentincomestatement
ReportedDepreciation= $1,517.00 !Thisisthedepreciationreportedinthestatementofcashflows
ReportedInterestExpense= $453.00 !Thisisthetotalinterestexpensereportedintheincomestatement
ReportedDebt= $6,972 !Thisistheinterestbearingdebtreportedonthebalancesheet

Output
Numberofyearsembeddedinyr6estimate= 0 !Iusetheaverageleaseexpenseoverthefirstfiveyears
toestimatethenumberofyearsofexpensesinyr6
Year PresentValue
1 $194.31
2 $150.04
3 $102.19
4 $69.42
5 $46.67
6andbeyond $ !Commitmentbeyondyear6convertedintoanannuityfortenyears
DebtValue= $562.64

RestatedFinancials
OperatingIncomewithOperatingleasesreclassifiedasdebt= $1,750.95
DebtwithOperatingleasesreclassifiedasdebt= $7,534.64
Interest Expense with Operating Lease reclassified as debt = $483.95
Imputed Interest Expense on Operating Lease debt $ 30.95
 Unadjusted Adjusted
Long Term Debt $6,103 $6,666
Short Term Debt $869 $869
BV of Equity $12,316 $21,416

LT Debt/Equity 49.55% 31.12%

LT Debt / (LT Debt + Equity) 33.13% 23.74%

Debt/Equity 56.61% 35.18%

Debt/ (Debt + Equity) 36.15% 26.03%

Estimated Market Value

Debt (not operating leases) $7,631
PV of operating leases $ 562.64
Market Value of Debt $8,194
Market Value of Equity $32,595
Debt/Equity (MV) 25.14%
Market Debt/Capital 20.09%

Interest Expense $453.00

Maturity 13.76
Market Interest Rate 5.50%
 R&DConverter
ThisspreadsheetconvertsR&Dexpensesfromoperatingtocapitalexpenses.Itmakestheappropriateadjustmentstooperatingincome,net
income,thebookvalueofassetsandthebookvalueofequity.

Inputs
OverhowmanyyearsdoyouwanttoamortizeR&Dexpenses 10 !Ifindoubt,usethelookuptablebelow
Themaximumallowedistenyears
EnterR&Dexpensesforpastyears:thenumberofyearsthatyouwillneedtoenterwillbedeterminedbytheamortizationperiod
Donotinputnumbersinthefirstcolumn(Year).Itwillgetautomaticallyupdatedbasedontheinputabove.

Year R&DExpenses
1 1895.00 !Year1isthemostrecentfinancialyear
2 1924.00 !Year2istheyearbeforethemostrecentfinan
3 1633.00
4 1300.00
5 1704.00
6 1661.00
7 1846.00
8 1417.00
9 827.00
10 754.00
11 751.00

Output ReseachAssetthisyear ReseachAssetlastyear

Year R&DExpense Unamortizedportion R&DExpense Unamortizedportion
1 1895.00 1.00 1895.00 1924.00 1.00 1924.00
2 1924.00 0.90 1731.60 1633.00 0.90 1469.70
3 1633.00 0.80 1306.40 1300.00 0.80 1040.00
4 1300.00 0.70 910.00 1704.00 0.70 1192.80
5 1704.00 0.60 1022.40 1661.00 0.60 996.60
6 1661.00 0.50 830.50 1846.00 0.50 923.00
7 1846.00 0.40 738.40 1417.00 0.40 566.80
8 1417.00 0.30 425.10 827.00 0.30 248.10
9 827.00 0.20 165.40 754.00 0.20 150.80
10 754.00 0.10 75.40 751.00 0.10 75.10
ValueofResearchAsset= $9,100.20 $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 NontechnologicalService 2years
AirTransport 10 Retail,TechService 3years
Aluminum 5 LightManufacturing 5years
Apparel 3 HeavyManufacturing 10years
Auto&Truck 10 Research,withPatenting 10years
AutoParts(O 5 LongGestationPeriod 10years
AutoParts(Re 5
Bank 2
Bank(Canadian 2
Bank(Foreign) 2
Bank(Midwest 2
Beverage(Alco 3
Beverage(Soft 3
BuildingMateri 5
CableTV 10
CanadianEner 10
Cement&Aggr 10
Chemical(Basi 10
Chemical(Diver 10
Chemical(Speci 10
Coal/Alternate 5
Computer&Per 5
ComputerSoft 3
Copper 5
DiversifiedCo. 5
Drug 10
Drugstore 3
EducationalSer 3
ElectricUtil.( 10
ElectricUtility 10
ElectricUtility 10
ElectricalEqui 10
Electronics 5
Entertainment 3
Environmental 5
FinancialServi 2
FoodProcessin 3
FoodWholesale 3
ForeignElectro 5
ForeignTeleco 10
Furn./HomeFur 3
Gold/SilverMi 5
Grocery 2
HealthcareInf 3
HomeApplianc 5
Homebuilding 5
Hotel/Gaming 3
HouseholdProd 3
IndustrialServi 3
Insurance(Dive 3
Insurance(Life 3
Insurance(Prop 3
Internet 3
InvestmentCo. 3
InvestmentCo. 3
InvestmentCo. 3
Machinery 10
Manuf.Housin 5
Maritime 10
MedicalServic 3
MedicalSuppli 5
MetalFabricati 10
Metals&Minin 5
NaturalGas(Dis 10
NaturalGas(Di 10
Newspaper 3
OfficeEquip& 5
OilfieldServic 5
Packaging&Co 5
Paper&Forest 10
Petroleum(Inte 5
Petroleum(Pro 5
PrecisionInstr 5
Publishing 3
R.E.I.T. 3
Railroad 5
Recreation 5
Restaurant 2
Retail(Special 2
RetailBuilding 2
RetailStore 2
SecuritiesBrok 2
Semiconductor 5
Semiconductor 5
Shoe 3
Steel(General) 5
Steel(Integrate 5
Telecom.Equi 10
Telecom.Servi 5
Textile 5
Thrift 2
Tire&Rubber 5
Tobacco 5
Toiletries/Cosm 3
Trucking/Trans 5
Utility(Foreign 10
WaterUtility 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 1120
Sales $ 56,154
Net Margin 1.99%

Operating Income $ 1,720

Sales $ 56,154
Operating Margin 3.06%

After-tax Operating Income $ 1,118

Sales $ 56,154
After-tax Operating Margin 1.99%

Return Ratios Unadjusted Adjusted

Net Income $1,120 $1,633
BV of Equity- Beginning $12,953 $21,540
BV of Equity- Ending $12,316 $21,416
BV of Equity - Average $12,635 $21,478
ROE (based on average) 8.86% 7.60%
ROE (based on beginning) 8.65% 7.58%
Ratios
After-tax ROC 6.96%
Debt/Equity Ratio 35.18%
Book Interest Rate (1-tax rate) 4.22%
ROE 7.92%
Unadjusted Adjusted
After-tax Operating Income $1,118 $1,651
BV of Capital - Beginning $17,345 $23,731
BV of Capital - Ending $19,288 $28,951
BV of Capital - Average $18,317 $26,341
ROC (based on average) 6.10% 6.27%
ROC (based on beginning) 6.45% 6.96%
Unadjusted Adjusted
Operating Income $ 1,118 $ 1,651
BV of Assets - Beginning $ 38,024 $ 38,024
BV of Assets - Ending $ 36,672 $ 36,672
BV of Assets - Average $ 37,348 $ 37,348
ROA (based on average) 2.99% 4.42%
ROA (based on beginning) 2.94% 4.34%

Capital Adjustment
Book Value of Capital $19,288
+ One-time Charge $0
+ Present Value of Operating Lease $ 562.64
+ Capitalized value of research asse $9,100
= Adjusted Book Value of Capital $28,951

EBITDA/Firm Value 7.94%

Current Assets $16,375
Current Liabilities $13,422
Working Capital $2,953

Non-cash Current Assets

Inventory $8,349
Accounts Receivable $5,564
Non-cash Current Liabilities
Accounts Payables $10,733
Other Current Liabilities $1,820
Non-cash Working Capital $1,360
Inputsforsyntheticratingestimation Boeing Home Depot
Enterthetypeoffirm= 1 (Enter1iflargemanufacturingfirm,2ifsm
EntercurrentEarningsbeforeinterestandtaxes(EBIT)= $1,935.00 (Forinitialestimate,Iaddedbackalloperat
Entercurrentinterestexpenses= $668.00 (Forinitialestimate,Iaddedbackalloperat
Output
Interestcoverageratio= 2.90
EstimatedBondRating= BBB
EstimatedDefaultSpread= 2.25%
EstimatedCostofDebt= 7.25%

Forlargemanufacturingfirms Forfinancialservicefirms
Ifinterestcoverageratiois Iflongterminterestcoverageratiois
> to Ratingis Spreadis greaterthan to
100000 0.199999 D 14.00% 100000 0.049999
0.2 0.649999 C 12.70% 0.05 0.099999
0.65 0.799999 CC 11.50% 0.1 0.199999
0.8 1.249999 CCC 10.00% 0.2 0.299999
1.25 1.499999 B 8.00% 0.3 0.399999
1.5 1.749999 B 6.50% 0.4 0.499999
1.75 1.999999 B+ 4.75% 0.5 0.599999
2 2.499999 BB 3.50% 0.6 0.799999
2.5 2.999999 BBB 2.25% 0.8 0.999999
3 4.249999 A 2.00% 1 1.49999
4.25 5.499999 A 1.80% 1.5 1.99999
5.5 6.499999 A+ 1.50% 2 2.49999
6.5 8.499999 AA 1.00% 2.5 2.99999
8.50 100000 AAA 0.75% 3 100000

Forsmallerandriskierfirms
Ifinterestcoverageratiois
greaterthan to Ratingis Spreadis
100000 0.499999 D 14.00%
0.5 0.799999 C 12.70%
0.8 1.249999 CC 11.50%
1.25 1.499999 CCC 10.00%
1.5 1.999999 B 8.00%
2 2.499999 B 6.50%
2.5 2.999999 B+ 4.75%
3 3.499999 BB 3.50%
3.5 4.499999 BBB 2.25%
4.5 5.999999 A 2.00%
6 7.499999 A 1.80%
7.5 9.499999 A+ 1.50%
9.5 12.499999 AA 1.00%
12.5 100000 AAA 0.75%
 Infosoft
Enter1iflargemanufacturingfirm,2ifsmallerorriskierfirm,3iffinancialservicefirm)
Forinitialestimate,Iaddedbackalloperatingleaseexpenses)
Forinitialestimate,Iaddedbackalloperatingleaseexpensestointerestexpense)

estcoverageratiois
Ratingis Spreadis
OperatingIncomeDecline
D 14.00% 50.00%
C 12.70% 40.00%
CC 11.50% 40.00%
CCC 10.00% 40.00%
B 8.00% 25.00%
B 6.50% 20.00%
B+ 4.75% 20.00%
BB 3.50% 20.00%
BBB 2.25% 20.00%
A 2.00% 17.50%
A 1.80% 15.00%
A+ 1.50% 10.00%
AA 1.00% 5.00%
AAA 0.75% 0.00%