5. Exercise 1.7

In 20082009, the price of jet and diesel fuel used by air freight companies decreased dramatically. As the CEO of FedEx, you have been presented with the following proposals to deal with the situation.

A. Reduce shipping rates to reflect the expense reduction.

B. Increase the number of deliveries per day in some markets.

C. Make long-term contracts to buy jet fuel and diesel at a fixed price for the next two years and set shipping rates to a level that will cover these costs.

Which of the proposals is most likely to lower the required rate of return in the shareholder wealth-maximization model?

Proposal B

Proposal A

Proposal C