Course Project 4



Course Project 4

Introduction

When starting a business, one can raise funds through debt or equity. Through Debt financing, company lend money from external lenders, mostly banks. The debt financing is a way for companies to obtain the capital they need to open and operate an existing business. Hence, the purpose of this paper is to plain some benefits and drawbacks of rising funds through debt for the FedEx Corporation.

Discussion

Operating Cash Flow: FedEx Corporation

 Year

0

1

2

3

4

5

6

Revenue

0

7,952,286

12,922,465

12,922,465

12,922,465

12,922,465

12,922,465

-Purchase of Office Supplies

0

19,881

9940.36

9940.36

9940.36

9940.36

9940.36

-Direct and indirect labor

0

4,771,372

5,566,600

5,566,600

5,566,600

5,566,600

5,566,600

-Marketing expense

397,614

795,229

685,885

685,885

685,885

685,885

685,885

- Depreciation

0

1250000

2500000

3250000

3250000

2000000

750000

EBIT

-397,614

1,115,805

4,160,040

3,410,040

3,410,040

4,660,040

5,910,040

-Taxes

-135188.867

379373.7575

1414413.519

1159413.52

1159413.5

1584413.519

2009413.519

Net income

-262,425

736,431

2,745,626

2,250,626

2,250,626

3,075,626

3,900,626

+ Depreciation

0

1250000

2500000

3250000

3250000

2000000

750000

Operating cash flow

-262,425

1,986,431

5,245,626

5,500,626

5,500,626

5,075,626

4,650,626

Debt Financing

A strategy which comprises of borrowed money in order to invest for future profit and on a repayment of the borrowed amount on specific period with certain interest on it. Forms financing can be prepared by the sources of funds (internal financing or external financing), while members of the legal position of investors (equity investors or foreign investors), resulting in a two-by-two matrix gives:

Foreign-funded debt = debt financing

Foreign-funded self-financing equity financing

Financed internally self-financing = self-financing

Interior funded debt financing from reserves

Debt financing is a loan, which means that capital flows from the outside by lenders in the business. Due to the lack of participation rights and participation in the profit / loss for the lender a return is paid in form of interest. This usually requires the risk free interest rate in the market along with a risk premium that depends upon the degree of the collateral and predictable risk. Additionally, the borrower repays the loan amount yet in chance of loss. It is not possible; the security that was requested by the lender usually in the contract will be handed over to the lender (Amadou N., 1999).

Some Benefits Funds through Debt for the FedEx Corporation

Preserve ownership

When company borrows some amount of money from banks or any other private institute, that person is compelled to make an agreement on the payment period. Nevertheless, this is end obligation to the lender; borrower can select to run his business though he select in the absence of outside intervention (Baker H., Nofsinger J., 2010).

Taxation

Tax is the main thing which attracts borrowers for the debt financing. The interest payment of loan and principle payment has been classified as expense for the business and this can be subtracted from the income tax of the business. This can portray a company as partner to the government with 30% (or whatever the tax rate is) of the tax ...