PLEASE USE THE INCOME STATEMENT AND BALANCE SHEET FROM UPS AND FEDEX FROM 2015 TO ANSWER THE FOLLOWING QUESTIONS.

Statement of Income
(all numbers in thousands)
		UPS			FedEx
Period Ending		31-Dec-15	31-Dec-14		31-Dec-15	31-Dec-14
Total Revenue		$58,363,000	$58,232,000		$50,365,000	$47,453,000
	Cost of Revenue	12,947,000	14,758,000		17,327,000	16,984,000
Gross Profit		$45,416,000	$43,474,000		$33,038,000	$30,469,000
Operating Expenses
	Research Development
	Selling General and Administrative	35,664,000	36,583,000		27,330,000	25,715,000
	Non Recurring					276,000
	Others	2,084,000	1,923,000		2,631,000	2,611,000
Total Operating Expenses		$37,748,000	$38,506,000		$29,961,000	$28,602,000
Operating Income or Loss		$7,668,000	$4,968,000		$3,077,000	$1,867,000
Income from Continuing Operations
	Total Other Income/Expenses Net	15,000	22,000		(1,000)	(5,000)
	Earnings Before Interest And Taxes	7,683,000	4,990,000		3,076,000	1,862,000
	Interest Expense	341,000	353,000		336,000	235,000
	Income Before Tax	7,342,000	4,637,000		2,740,000	1,627,000
	Income Tax Expense	2,498,000	1,605,000		920,000	577,000
Net Income		$4,844,000	$3,032,000		$1,820,000	$1,050,000
Dividends Paid		2,149,680	2,115,230		427,200	347,100
Change in Retained Earnings		$2,694,320	$916,770		$1,392,800	$702,900

Balance Sheet
(all numbers in thousands)
		UPS			FedEx
Period Ending		31-Dec-15	31-Dec-14		31-Dec-15	31-Dec-14
Assets
Current Assets
	Cash And Cash Equivalents	$2,709,000	$2,274,000		$3,534,000	$3,763,000
	Short Term Investments	1,996,000	992,000
	Net Receivables	7,134,000	6,661,000		7,252,000	5,719,000
	Inventory				496,000	498,000
	Other Current Assets	1,348,000	1,274,000		707,000	355,000
Total Current Assets		$13,187,000	$11,201,000		$11,989,000	$10,335,000
Long Term Investments		473,000	489,000
Property Plant and Equipment		18,352,000	18,281,000		24,284,000	20,875,000
Goodwill		3,419,000	2,184,000		6,747,000	3,810,000
Intangible Assets		1,549,000	847,000
Other Assets		1,055,000	1,202,000		3,044,000	1,511,000
Deferred Long Term Asset Charges		255,000	1,219,000
Total Assets		$38,290,000	$35,423,000		$46,064,000	$36,531,000
Liabilities
Current Liabilities
	Accounts Payable	$5,497,000	$5,783,000		$7,979,000	$5,937,000
	Short/Current Long Term Debt	3,735,000	1,471,000		29,000	19,000
	Other Current Liabilities	1,464,000	1,367,000
Total Current Liabilities		$10,696,000	$8,621,000		$8,008,000	$5,956,000
Long Term Debt		11,316,000	9,856,000		13,838,000	7,249,000
Other Liabilities		13,693,000	14,727,000		8,312,000	6,231,000
Deferred Long Term Liability Charges		115,000	78,000		2,122,000	2,102,000
Total Liabilities		$35,820,000	$33,282,000		$32,280,000	$21,538,000
Stockholders' Equity
Common Stock		$9,000	$9,000		$32,000	$32,000
Retained Earnings		6,001,000	5,726,000		18,371,000	16,900,000
Treasury Stock		(51,000)	(59,000)		(7,342,000)	(4,897,000)
Capital Surplus					2,892,000	2,786,000
Other Stockholder Equity		(3,489,000)	(3,535,000)		(169,000)	172,000
Total Stockholder Equity		$2,470,000	$2,141,000		$13,784,000	$14,993,000
Total Liabilities + Equity		$38,290,000	$35,423,000		$46,064,000	$36,531,000

The inclusion of hybrid electric vehicles (HEVs) into UPS vehicle fleet appears to be profitable, but we have to come up with the $274 million from somewhere. Last time, we evaluated the cost of our sources of financing. Now we need to identify the best financing options. Compute the operational and financial leverage for UPS and Fedex using 2015 income statements and balance sheet. Is our operational or financial leverage (remember, costs of goods sold are costs that vary with our sales; maintenance costs, depreciation, and other operating expenses are fixed costs) out-of-line with our rival, FedEx? Compute and compare the net working capital to temporary/permanent current assets. How does our capital structure compare with industry averages and benchmarks? (Please assume that 80% of our current assets are permanent.) Lastly, please compute our weighted average cost of capital, using our average tax rate. Please assume the following before-tax costs of capital:

Short term debt and other current liabilities: 3.4%

Long-term bonds: 5.0%

Deferred liabilities and other long-term liabilities: 0.0%

Common stock: 8.4%

If we were to need additional financing, what kind(s) of financing would best bring our leverage and working capital closer to industry norms? We have opportunities for 3-month commercial paper at 2.5%, additional bonds at 5.6%, and additional shares of stock at 9.7%. However, we would like to maintain a moderate working capital profile and our current debt-to-assets ratio of no greater than 0.90.