OOPS is the worlds largest package delivery company. It delivers more than 15 million packages per day to more than 7 million customers across almost all countries around the world. OOPS operates brown delivery trucks, as well as its own airline and air cargo delivery service. Founded in 1907, it became a public company in 1999, and as of year-end 2016, had $58B annual revenues and $4.4B net income. You have just been hired as a financial advisor to OOPS. The board and the senior management want you to give them a basic understanding of where funds are coming from and going into and to advise them on the optimal capital structure. Exhibit 1 contains a summary Balance Sheet and Income Statement for OOPS.

QUESTION 1. Calculate the collection period (with Revenue in the denominator), the payables period (with Costs&Expenses in the denominator), and OOPSs cash cycle using 2016 numbers. Note that OOPS has no inventories. What does this number say about the Company and its working capital needs?

QUESTION 2. What were the two main uses and two main sources of funds between 2015 and 2016?

QUESTION 3. Using the data for 2016, assuming that the CAPM holds and the market risk premium is 7%, estimate the cost of equity and the weighted average cost of capital (WACC) for OOPS. Assume that the current cash balance of $2,291 is not excess cash (so that it does not count as negative debt).

QUESTION 4. The new CFO of OOPS, N.O. Debt, is pondering switching to the capital structure that has 100% equity financing and no debt at all. N.O. Debts grandmother, who lived through the Great Depression, used to say: Rather go to bed supperless, than rise in debt. What would be the weighted average cost of capital (WACC) of OOPS under the proposed change of N.O. Debt? Based on your answers to questions 3 and 4, would you recommend this change?

QUESTION 5. Are the following statements true, false, or uncertain? Explain briefly. (a) Because the cost of debt is usually below the cost of equity, firms should finance their operations with as much debt as possible. (b) If done correctly, the NPV estimated should be the same if either real cash flows are discounted at the real discount rate or nominal cash flows are discounted at the nominal discount rate.

Exhibit 1 BALANCE SHEET in USD millions Cash & ST Investments Accounts Receivable Other Current Assets Total Current Assets Dec-2015 2,730 6,661 1,274 10,665 Dec-2016 2,291 7,134 1,348 10,773 Property/Plant/Equipment, net Other Long-term Assets Total Assets 23,352 489 34,506 24,800 473 36,046 Accounts Payable Notes Payable / Short-term Debt Current Portion of Long-term Debt Total Current Liabilities 2,754 0 3,018 5,772 2,587 0 3,081 5,668 Long-term Debt Shareholders' Equity Total Liabilities & Equity 19,712 9,022 34,506 18,900 11,478 36,046 Dec-2016 58,363 48,591 9,772 INCOME STATEMENT (annual) in USD millions Revenue Costs & Expenses Earnings before interest, tax, depreciation, and amort. (EBITDA) Depreciation Earnings before interest & tax (EBIT) Interest Expense (4% interest rate) Profits Before Tax Taxes (@ 35% rate) Net Income 2,084 7,688 909 6,779 2,373 4,406 100 OTHER INFORMATION Share Price Today ($/share) Shares Outstanding (millions) Equity Beta 30-year Treasury bond yield, current Treasury bill (3-month) yield, current 30-y. Treasury bond yield, historical average Treasury bill yield, historical average 650 0.86 3.00% 0.90% 5.10% 4.20% Exhibit 1 BALANCE SHEET in USD millions Cash & ST Investments Accounts Receivable Other Current Assets Total Current Assets Dec-2015 2,730 6,661 1,274 10,665 Dec-2016 2,291 7,134 1,348 10,773 Property/Plant/Equipment, net Other Long-term Assets Total Assets 23,352 489 34,506 24,800 473 36,046 Accounts Payable Notes Payable / Short-term Debt Current Portion of Long-term Debt Total Current Liabilities 2,754 0 3,018 5,772 2,587 0 3,081 5,668 Long-term Debt Shareholders' Equity Total Liabilities & Equity 19,712 9,022 34,506 18,900 11,478 36,046 Dec-2016 58,363 48,591 9,772 INCOME STATEMENT (annual) in USD millions Revenue Costs & Expenses Earnings before interest, tax, depreciation, and amort. (EBITDA) Depreciation Earnings before interest & tax (EBIT) Interest Expense (4% interest rate) Profits Before Tax Taxes (@ 35% rate) Net Income 2,084 7,688 909 6,779 2,373 4,406 100 OTHER INFORMATION Share Price Today ($/share) Shares Outstanding (millions) Equity Beta 30-year Treasury bond yield, current Treasury bill (3-month) yield, current 30-y. Treasury bond yield, historical average Treasury bill yield, historical average 650 0.86 3.00% 0.90% 5.10% 4.20%