FedEx Some Assumptions Need to Term Paper

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02143

USD Rate

CAD

1

1.019015

0.00861

0.011

2

1.022995

0.01315

0.0116

3

1.027413

0.01833

0.0124

4

1.030542

0.02244

0.0134

5

1.03375

0.02623

0.014

6

1.033257

0.02827

0.0165

These figures that be used to convert the CAD cash flows into future USD.

According to the FedEx 2010 Annual Report (p.49), the company's discount rate for internal usage is 12%, so that is the discount rate used in this example.

The prospect of higher inflation in the future has already been accounted for. The discount rate factors in future inflation, as does the interest rates that are used in interest rate parity. Thus, the net present value of the project already reflects expectations for future inflation in both the U.S. And in Canada.

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No further accounting of inflation expectations should be done. The basic figures initially presented of course do not factor in inflation, which is why I have added the discount rate and the expected future interest rates. Those are essential in accounting for the effects of inflation.

Memo:

It is recommended that FedEx Canada proceed with the Toronto expansion. The net present value of the project is $18.84 million USD. Any project with a positive NPV should proceed, and this project has a substantial NPV. Even when the salvage value is removed, the project has a positive NPV (indeed, the salvage value is.....

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