In September 2023, suppose FedEx had the following characteristics: Stock price = $250/share Shares outstanding = 256
Question:
In September 2023, suppose FedEx had the following characteristics: Stock price = $250/share Shares outstanding = 256 million Net Debt (debt - cash) = $13.7 billion Equity beta = 1.40
i. Using this information, estimate FedEx's Asset Beta.
ii. Using the information above for FedEx, suppose the risk-free rate is 4% and the market risk premium is 3%. What is FedEx's unlevered cost of capital?
iii.Using the information above for FedEx, suppose in addition that FedEx pays a tax rate of 22%, and an interest rate of 4% on its debt. Suppose also that FedEx plans to finance new projects using 17.6% debt going forward.
iv. What is FedEx's debt tax shield? (That is, by how much should we lower its unlevered cost of capital to determine its WACC?)
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw