The questions in this exercise are based on FedEx Corporation. To answer the questions, you will need to download FedEx’s 2005 10-K at ir.fedex.com/finance/edgar.cfm. You do not need to print the 10-K to answer the questions.

Required:

1. What is FedEx’s strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition?

What evidence supports your conclusion?

2. What are FedEx’s four main business segments? Provide two examples of traceable fixed costs for each of FedEx’s four business segments. Provide two examples of common costs that are not traceable to the four business segments.

3. Identify one example of a cost center, a profit center, and an investment center for FedEx.

4. Provide three examples of fixed costs that can be traceable or common depending on how FedEx defines its business segments.

5. Compute the margin, turnover, and return on investment (ROI) in 2005 for each of FedEx’s four business segments. (Hint: page 99 reports total segment assets for each business segment).

6. Assume that FedEx established a minimum required rate of return of 15% for each of its business segments. Compute the residual income earned in 2005 in each of FedEx’s four segments.

7. Assume that the senior managers of FedEx Express and FedEx Ground each have an investment opportunity that would require $20 million of additional operating assets and that would increase operating income by $4 million. If FedEx evaluates all of its senior managers using ROI, would the managers of both segments pursue the investment opportunity? If FedEx evaluates all of its senior managers using residual income, would the managers of both segments pursue the investment opportunity?