Question
In September 2023, suppose FedEx had the following characteristics: Stock price = $250/share Shares outstanding = 256 million Net Debt (debt - cash) = $13.7
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?)
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Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
9th Edition
1337614689, 1337614688, 9781337668262, 978-1337614689
