Course Project 5



Course Project 5

Introduction

In the field of economic and finance, an investment is a placement of capital so that future gain is achieved and further expansion can be made. The decision to invest is an immediate benefit by giving up a future that is unlikely. When investing, companies usually have to consider three variables: the expected performance (i.e. how much is expected to gain from the investment), the accepted risk (linked to the odds of getting the expected return) and the time horizon (when provide investment returns; the short, medium or long term).

The purpose of this session will focus on the entire assessment of the proposed investment project in a foreign country by the FedEx Corporation.

Discussion

FedEx Weighted Average Cost Of Capital

The weighted average cost of capital of FedEx which was calculated was 4.2% and on this basis of this figure the investment decision of foreign country was undertaken.

for Long term debt we have taken 1 year Municipal Bonds return rate

WACC

 

 

4.20%

= 58224.26/67647.26*4.9%+9423/67647.26*0.174 %*( 1*-0.35)

= 4.20%

The WACC of FedEx Corporation is 4.20% which means that 4.2% must be earn by the company on an existing asset in order to satisfy their creditor, investors and owners. Through WACC, the future cash flow was discounted in order to the viability of the project. These cash flows were calculated after converting the revenue and expenses in to the U.S. dollars as they were in Canadian dollars excluding the investment which was in U.S. dollars. WACC has been used to analyze the profitability of the FedEx investment plan. This determines the future leverage target, what rate is estimated which could raise money from its bankers or the bond market, and, very delicate exercise, try to estimate the minimum return that shareholders expect from their investment (Pratt S., Grabowski R., 2010).

However, before an investment undertaken, ...