Course Project 2

Course Project 2

Introduction

The purpose of this paper is to see any important economic variables that financial managers of FedEx Corporation need to identify before expanding in Canada. Economic variables can be defined as a measure of that variable which could influence the decision regarding the how, what and for whom the economy deals with and explain the output of those decisions.

Discussion

Prepare a table with the following columns:

Company name: FedEx Corporation

 Source of Finance

Balance sheet value as of: May 31, 2010

Market value as of: May 31, 2011

Proportion in total financing

Cost of capital

Product of (4)x(5)

1

2

3

4

5

 

 

 

 

 

 

 

Short term Debt

4645

4645

0.068665013

0.194%

0.00013321

Long Term debt

4778

4778

0.070631094

0.194%

0.000137024

Common equity

31.4

58224.26

0.860703893

4.9%

0.042174491

 

9454.4

67647.26

1

 

4.24%

When companies expanding the operations in some other country, the economic indicators are essential as these indicators has direct impact on the demand, supply and profit of the product. For instance, if FedEx wants to expand their operation in Canada, the interest rate and inflation rate would impact most on the project. The interest of the company to invest in those countries where interest rate is less diminishes due to the fact that the cost of the borrowing would increase. It is common that company investment largely through credit. Furthermore, increase in interest rate deems that company would require committing more resources in order to cover up the interest payment on their debts and hence this reduces the opportunity to invest further in the country (Dijk R., 2011).

In case of FedEx Corporation as revenues and expenses are in Canadian dollars, and in order to express after-tax cash flow in U.S. dollars, this amount would be affect if the interest rate increased. This is the major reason of decline in the stock market. As the new rate of interest arises this tends to lower the investment which is equals to the lower potential growth for business in future. When the interest rate goes up, the cost of credit are go up, which hampers the ability of the business sector to finance investment. This in turn can have an impact on the level of unemployment, for the same difficulty for companies to finance their growth and development (www.parl.gc.ca).

The fact that loans are more expensive, means that demand is diminished, since consumers will be reluctant to consume with credit cards or make consumer loans. When interest rates are high, it is attractive to save, so many people would rather save than spend, helping to get the claim. The decrease in consumption ...