FedEx Corporation Offers Worldwide Delivery Services in Capstone Project

Excerpt from Capstone Project :

FedEx Corporation offers worldwide delivery services in the overnight and ground businesses, along with other related logistics services. The company operates around the world, utilizing either wholly-owned subsidiaries or service partners to gain market entry. If the company is considering making an investment in a foreign country, it can start by determining the cost of capital. Most of the company's business is in the U.S., so the domestic cost of capital is applicable. There are different methods of financing that could be used to fund the expansion, debt or equity. Debt financing has the benefit of a lower cost but it also increases the risk that the company faces. Equity financing has a higher cost but carries with it less risk, since less of the company's cash flows are going towards debt service. Moreover, if the company wants to match the term of the financing with the term of the project, a new market entry for FedEx is of infinite time frame and will therefore match better with equity financing.

In considering where to expand, FedEx needs to look at a number of market factors. The first is that the company needs to examine what the potential demand is. Macroeconomic variables like GDP or GDP per capita are good indicators of suitable markets for the company, since countries that are too poor will have little market for FedEx's premium shipping services. In some poor countries, there are cities that have enough wealth to sustain the company, so it maintains a limited presence in some markets, servicing only the areas with good earning potential. The company might also wish to consider the costs of entering a market, which would naturally be weighed against the benefits. There are a couple of major cost factors for FedEx. The first is the salaries and wages of the workers, which are high in developed countries but somewhat lower in many of the markets that remain untapped for FedEx. The company's other major expense comes from its fleet -- aircraft, vehicles and fuel. These are more constant around the world, though in some countries there are differentials in fuel price. The revenue will be affected by the local market conditions, especially competitive benchmarking.

The weighted average cost of capital is calculated by looking at the cost of debt and the cost of equity. The capital structure of FedEx is 47.7% debt and 52.3% equity as of…

Sources Used in Document:

References

MSN Moneycentral. (2014). FedEx Corporation. Retrieved January 23, 2014 from http://investing.money.msn.com/investments/stock-balance-sheet/?stmtView=Qtr&symbol=FDX

Robinson, M. (2014). FedEx sells $2 billion of debt in three parts, credit swaps hold. Bloomberg. Retrieved January 23, 2014 from http://www.bloomberg.com/news/2014-01-06/FedEx-said-to-plan-2-billion-bond-offering-credit-swaps-hold.html

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