Wacc for Fedex Corp.

Preface First of all, I would like to thank Ms. Thuy for her enthusiastic guidance and response all of questions to help me complete this exercise easily. Simultaneously, thanks to her professional lectures on class which also build me with deep understanding of how to access and deal with problems in financial management so that I can complete this report. All of the data is collected through 2 website: http://finance. yahoo. com/ and http://www. finra. org/ I. ABOUT FEDEX CORPORATION: FedEx Corporation is a holding company.The Company provides a portfolio of transportation, e-commerce and business services under the FedEx brand, originally known as  FDX Corporation, is an American global  courier  delivery services company headquartered in  Memphis, Tennessee. FedEx Corporation is a Delaware corporation, incorporated October 2, 1997. FDX Corporation was founded in January 1998 with the acquisition of Caliber System Inc. by Federal Express,  the world's  largest airlineà ‚  in terms of freight tons flown and the world's fourth largest in terms of fleet size, delivering packages and freight to more than 375 destinations in nearly every country each day.With the purchase of Caliber, FedEx started offering other services besides express shipping. The  Standard Carrier Alpha Code (SCAC)  is a unique code used to identify transportation companies. It is typically two to four alphabetic letters long. It was developed by the  National Motor Freight Traffic Association  in the 1960s to help the transportation industry for computerizing data and records. FedEx's codes include: * FDE – FedEx Express * FDEG – FedEx Ground * FXFE – FedEx Freight * FDCC – FedEx Custom Critical II. STATISTICS AND CALCULATION: 1. Summary  statistics:Accroding to the collected data: There is one non- callable bond issues of FedEx Corporation (FDX) in the ten-year maturity which is FDX. GD, use its yield of maturity as the pre-tax cost of debt. * Market value of equity: 34. 3 billions in USD * Value cash: 34. 02 billions in USD * The beta is 1. 32 and risk-free rate is 2% * A market risk premium of 5% and tax rate of 35% 2. Estimated equation a. The market value of debt: Using the collected data in the appendix 3, the market value of debt can be easily calculated: The market value of FDX’s debt = $250,000,000*105. 08%+$750,000,000*130. 704%+$239,000,000*131%=$1,557,390,000 * Total value of the firm = Total of market value of debt and equity =$34,300,000,000+$1,557,390,000=$35,857,390,000 b. The weights for FedEx’s equity and debt: Weight for equity =34,300,000,00035,857,390,000=95. 6567% Weight for debt=1,557,390,00035,857,390,000=4. 3433% 3. Apply the CAPM to Calculate GM’s WACC Cost of Equity = Risk-Free Rate + Equity Beta * Market Risk Premium =2%+1. 32*5%= 0. 086 Effective Cost of debt = Rd1-Tc=5. 89%1-0. 35=0. 0376 WACC is the average of the costs of these sources of financing, each of which is we ighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances. A firm's WACC is the overall required return on the firm as a whole and, as such, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers.It is the appropriate discount rate to use for cash flows with risk that is similar to that of the overall firm. The WACC equation is the cost of each capital component multiplied by its proportional weight and then summing:   WACC= EV. Re+DV. Rd(1-Tc) We can easily calculate: WACC of FedEx Corporation is approximately 8. 3898%. III. APPENDIX: Appendix 1: Market value of equity| Enterprise value cash| Beta| $34. 3| $34. 02| 1. 32| *dollar amount in billions| Appendix 2: Risk free rate| Pre-tax cost of debt (Rd)| %| 5. 789| Appendix 3: Bond Symbol| Issuer Name| Coupon| Maturity| Callable| Price| Yield| Amount out standing| | | | | | | | | FDX. GX| FEDERAL EXPRESS CORP PASS THRU TR| -| -| No| 121. 375| 4. 153| -| FDX. HR| FEDERAL EXPRESS CORP| -| -| No| -| -| -| FDX. HO| FEDEX CORP| 7. 38| 01/15/2014| Yes| 105. 608| 0. 507| $250,000| FDX. HP| FEDEX CORP| 8| 01/15/2019| Yes| 130. 704| 2. 327| $750,000| FDX. GD| FEDERAL EXPRESS CORP| 7. 6| 07/01/2097| No| 131| 5. 789| $239,000| *dollar amount in thousands|