Submitted by: Submitted by robirwin2000
Views: 466
Words: 1037
Pages: 5
Category: Business and Industry
Date Submitted: 09/29/2010 07:32 PM
McDonald’s (MCD)
Financial Economic Performance
Inputs:
* Land (including materials):
* Labor: the industry is highly labor intensive: average annual revenue per worker is just under $40,000
* Capital
* Entrepreneurship (including management) (Keith)
EVA = Value of Outputs – Full Cost of Inputs
Economic Profit = NOPAT – Equity Cost
CAPM: Ri = Rf + betai x (Rp-Rf)
Ri = .04 + (0.55) x (.065)
Ri = .07575; 7.6%
Firm Value =
£TRt-TC11+rt
Practicalities – Risk Premium: investors require 6.5% more on average to invest in private rather than government stocks. So Rp = government stock rate plus 6.5%
Rp- Rf = .065
Cost of Equity
Profitability of Restaurants depends on
* Efficient Operations
* Effective Marketing
* Ability to provide fast service
* Effective Franchising Efforts
Industry Environment: Fast Food and Quick Service Restaurants
* Highly Fragmented – top 50 companies hold about 25% of industry sales
* Hamburger restaurants account for 50% of the major fast food chains
(Beau) Entry: Is it hard to open up a fast food chain? Physical location, startup capital (expensive), unskilled labor, ability to exit (risk), competing against global franchises who have marketing, brand identification, and operating efficiency advantages
Trying to establish a national fast food chain would not be an easy task, as there are several tough barriers to overcome. First, the required start-up capital would be a massive investment, easily numbering in the millions, depending on how deep a presence the company wanted. Picking out locations and acquiring the facilities would be another issue. Purchasing the locations outright would result in an additional huge expense, and create assets that would need to be sold off if the venture failed. Leasing may make starting up easier, but create problems down the road with contract renegotiations. Perhaps the biggest barriers to entry are the competitors...