Cost of Capital, Capital Structure, and Capital Budgeting Analysis(Fedex)|Course hero helper

Posted: February 28th, 2023

GUIDELINE:

Please find the financial statements of Fedex from internet and do the following analysis. The sample project is for guidance only. Your project should be well-organized and typed in a Word document with important tables and results. The style and organization of the project accounts for 10 points. Do not directly copy any contents or results from any other sources. List the cited references in your project. Both the Word/PDF documents and Excel calculations are required for the submission.

(1) Executive Summary (10 points)

– Summarize the major findings, results, and the analysis of the report.

(2) Financial Ratio Analysis (40 points)

You are expected to retrieve the most recent 5 years’ financial statements your selected company and apply the knowledge learned in Financial Management and Financial Statement Analysis (ACCT6351) to calculate and analyze the key financial ratios for the firm.

– Perform trend analysis of the key financial ratios (i.e., liquidity ratios, asset management ratios, debt ratios, profitability ratios, market value ratios) for 5 years.

– Perform industry (or benchmark companies) comparison analysis of the key financial ratios of the company for the most recent year.

– Based on the financial ratio analysis results, discuss/evaluate the financial performance of the firm.

(3) Estimate Capital Structure (20 points)

– Estimate the firm’s weights of debt, preferred stock, and common stock using the firm’s balance sheet (book value) using the most recent year data.

– Estimate the firm’s weights of debt, preferred stock, and common stock using the market value of each component using the most recent year data.

SOLUTION

Cost of Capital:
The cost of capital is the cost that a company incurs to raise funds for its operations. It is the rate of return that investors require to invest their money in a company. The cost of capital is determined by the weighted average cost of capital (WACC), which is calculated by weighting the cost of each source of capital by its proportion in the company’s capital structure. FedEx’s Cost of Capital:
FedEx’s cost of capital is determined by its capital structure, which consists of debt and equity. As of May 31, 2021, FedEx had a debt-to-equity ratio of 0.91. The company’s WACC is estimated to be around 6.8%. FedEx’s cost of debt is 3.3%, and its cost of equity is 8.6%. The company’s WACC is lower than the industry average, which indicates that FedEx is able to finance its operations at a lower cost compared to its peers.