cases of FedEx, UPS & Boieng
FN6033:CORPORATE FINANCE
ASSIGNMENT: CASE STUDIES
CASE 1: THE BATTLE FOR VALUE, 2004: FEDEX CORP.
VS. UNITED PARCEL SERVICE, INC.
QUESTIONS:
1. There is competition in the overnight package delivery industry, and the strategies by which those two firms are meeting the competition. What are the enabling and inhibiting factors facing the two firms as they pursue their goals? Do you think that either firm can attain a sustainable competitive advantage in this business?
2. Why did FedEx’s stock price outstrip UPS’s during the initiation of talks over liberalized air cargo routes between the U.S. and China? Assuming a perfectly efficient stock market, how might one interpret a 13.9 % increase in FedEx’s market value of equity compared to 3.1% increase for UPS?
3. How have FedEx and UPS performed since the early 1990s? Which firm is doing better? Also, prepare to describe how EVA is estimated, and its strengths and weaknesses as a measure of performance.
CASE 2: THE BOEING 7E7
QUESTIONS:
1. Why is Boeing contemplating the launch of the 7E7 project? Is this a good time to do so?
2. Should Boeing’s Board approve the 7E7?
3. How would we know if the 7E7 project will create value?
4. Examine the details of how to estimate the WACC.
5. The weighted-average cost of capital is a simple formula. Yet it seems that reasonable people can disagree about the estimates. How can there be such a range of cost of capital estimates? Please summarize the issues.
6. Is there anything else the board of directors should consider in assessing the financial appeal of this project? Why might the board vote “yes” on the 7E7, when the cost of capital estimate is greater than the IRR? Why might the Board vote “no” if the cost of capital estimate is less than the IRR?
7. What should the board do?
SUBMISSION DATE: 19th NOVEMBER
ASSIGNMENT: CASE STUDIES
CASE 1: THE BATTLE FOR VALUE, 2004: FEDEX CORP.
VS. UNITED PARCEL SERVICE, INC.
QUESTIONS:
1. There is competition in the overnight package delivery industry, and the strategies by which those two firms are meeting the competition. What are the enabling and inhibiting factors facing the two firms as they pursue their goals? Do you think that either firm can attain a sustainable competitive advantage in this business?
2. Why did FedEx’s stock price outstrip UPS’s during the initiation of talks over liberalized air cargo routes between the U.S. and China? Assuming a perfectly efficient stock market, how might one interpret a 13.9 % increase in FedEx’s market value of equity compared to 3.1% increase for UPS?
3. How have FedEx and UPS performed since the early 1990s? Which firm is doing better? Also, prepare to describe how EVA is estimated, and its strengths and weaknesses as a measure of performance.
CASE 2: THE BOEING 7E7
QUESTIONS:
1. Why is Boeing contemplating the launch of the 7E7 project? Is this a good time to do so?
2. Should Boeing’s Board approve the 7E7?
3. How would we know if the 7E7 project will create value?
4. Examine the details of how to estimate the WACC.
5. The weighted-average cost of capital is a simple formula. Yet it seems that reasonable people can disagree about the estimates. How can there be such a range of cost of capital estimates? Please summarize the issues.
6. Is there anything else the board of directors should consider in assessing the financial appeal of this project? Why might the board vote “yes” on the 7E7, when the cost of capital estimate is greater than the IRR? Why might the Board vote “no” if the cost of capital estimate is less than the IRR?
7. What should the board do?
SUBMISSION DATE: 19th NOVEMBER