busn 5000 week 7 hw
docx
keyboard_arrow_up
School
Webster University *
*We aren’t endorsed by this school
Course
5000
Subject
Finance
Date
Feb 20, 2024
Type
docx
Pages
5
Uploaded by JusticeIbisMaster903
BUSN 5000
Homework 7
Please open this document in Microsoft Word and respond directly in this document without modification of the text in bold. This way the answer will be in the same place and in the same format for every student.
You will submit this Word file in Canvas. If you have any trouble, reach out to your instructor in a timely manner.
Question 1 – McDonalds is considering purchasing its (hypothetical) rival, Crusty Burger. McDonalds analysts believe the following stream of earnings (profit) is a reasonable estimate. Determine the maximum price McDonalds should pay for Crusty Burger based on the value of earnings alone. You may use whatever discount rate you choose but prepare to justify this choice in the following question. You must show all your work.
10-Year Projected Earnings for
Crusty Burger
Year
1
$300 Million
Year
2
$310 Million
Year
3
$320 Million
Year
4
$330 Million
Year
5
$340 Million
Year
6
$350 Million
Year
7
$360 Million
Year
8
$370 Million
Year
9
$380 Million
Year
10
$390 Million
Provide the appropriate calculation and solution immediately below
Answer:
To determine the maximum price McDonald's should pay for Crusty Burger based on the value of earnings alone, I
am using the concept of discounted cash flows (DCF) to calculate the present value of the projected earnings.
According to (Girardin, 2022), Discounted cash flow (DCF) valuation is a type of financial model that determines
whether an investment is worthwhile based on future cash flows. A DCF model is based on the idea that a
company’s value is determined by how well the company can generate cash flows for investors in the future.
The present value represents the current worth of future earnings, taking into account the time value of money. The
present value is calculated using a discount rate of 10%, which is a commonly used discount rate for valuing
investments in similar industries. To calculate the Present Value, I used the excel tool and its function fx (PV) to
calculate the present value of an investment: the total amount that a series of future payments is worth now.
BUSN 5000
Homework 7
In the function section, the rate is 10%, Nper is the specific year, and Fv is the future value specified in the question.
For example, the Pv for Year 1 is (272.73), which is calculated as follows: For year one, the rate is 0.10 (10%), the
Nper is 1, and the Fv is 300.
The choice of a 10% discount rate in the analysis was based to make a reasonable assumption for the required rate of
return or discount rate for McDonald's. Here's why I used 10% discount rate:
1.
Industry Standard
:
-
10% discount rate is a commonly used benchmark in finance and investment analysis. It is often
considered a reasonable rate to apply when evaluating investment opportunities in various
industries, including the fast-food industry to which McDonald's belongs. This rate represents the
expected return that investors could earn on alternative investments with similar levels of risk.
2.
Risk Consideration
:
-
McDonald's, being a large and established company, is likely to have a lower level of risk
compared to smaller or riskier ventures. A 10% discount rate accounts for the low level of risk
associated with established, publicly traded companies like McDonald's.
3.
Stability
:
-
McDonald's is a well-established company with a history of stable and predictable earnings. A
10% discount rate reflects the expectation that the company can continue to generate a consistent
return on investment in line with its historical performance.
10-Year Projected Earnings for Crusty
BUSN 5000
Homework 7
Burger
Year
Earning
Discount %
PV
Year 1
300
10%
(NPR272.73)
Year 2
310
10%
(NPR256.20)
Year 3
320
10%
(NPR240.42)
Year 4
330
10%
(NPR225.39)
Year 5
340
10%
(NPR211.11)
Year 6
350
10%
(NPR197.57)
Year 7
360
10%
(NPR184.74)
Year 8
370
10%
(NPR172.61)
Year 9
380
10%
(NPR161.16)
Year 10
390
10%
(NPR150.36)
Total
(NPR2,072.28
)
Next, to calculate the total present value from the sum up of the present values of each year's earnings:
Total Present Value = $272.73 Million + $256.20 Million + $240.42 Million + $225.39 Million + $211.11 Million +
$197.57 Million + $184.74 Million + $172.61 Million + $150.36 Million= $2072.28 Million
In Conclusion, based on the projected earnings, the maximum price that McDonald's should pay for Crusty Burger is
$2072.28 Million.
Question 2 – Provide an executive summary justifying a maximum purchase price. Be sure
to justify your choice of discount rate in your summary. Do not quote directly from any source including ChatGPT. Rely on your own reasoning. Limit 300 words
Answer:
McDonald's is considering the acquisition of its hypothetical rival, Crusty Burger, and needs to
determine the maximum purchase price based on the projected earnings of Crusty Burger. The
analysis employs the Discounted Cash Flow (DCF) method, which calculates the present value
of future earnings, considering a discount rate of 10%. The total maximum price that
McDonald’s should pay for Crust Burger is $2072.28 million through which the McDonalds will
earn the total amount of $3450 in 10
years. The choice of a 10% discount rate is based on several factors. Firstly, it reflects the opportunity
cost of investing in Crusty Burger compared to other investment opportunities available to
McDonald's. Secondly, it considers the risk associated with the acquisition. A higher discount
rate would account for higher risk, but since Crusty Burger is a hypothetical rival, I assume a
moderate level of risk.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
BUSN 5000
Homework 7
1.
Industry Standard
: A 10% discount rate is a commonly used benchmark in finance and
investment analysis. It is often considered a reasonable rate to apply when evaluating
investment opportunities in various industries, including the fast-food industry to which
McDonald's belongs. This rate represents the expected return that investors could earn on
alternative investments with similar levels of risk.
2.
Risk Consideration
: The discount rate should reflect the level of risk associated with the
investment. McDonald's, being a large and established company, is likely to have a lower
level of risk compared to smaller or riskier ventures. A 10% discount rate accounts for
the moderate level of risk typically associated with established, publicly traded
companies like McDonald's.
3.
Stability
: McDonald's is a well-established brand with a history of stable and predictable
earnings. A 10% discount rate reflects the expectation that the company can continue to
generate a consistent return on investment in line with its historical performance.
In conclusion, the maximum purchase price of $2072.28 Million is justified based on the present
value of projected earnings, assuming the accuracy of the projections and a moderate level of
risk. The choice of a 10% discount rate reflects the opportunity cost, risk, and time value of
money. This valuation provides a starting point for negotiations and other factors such as market
conditions, brand value potential growth opportunities that may impact the final purchase price.
BUSN 5000
Homework 7
REFERENCE
Girardin, M. (2022, September 8). Discounted Cash Flow (DCF) Valuation: The Basics
. Forage. https://www.theforage.com/blog/skills/dcf-valuation#:~:text=Discounted%20cash
%20flow%20(DCF)%20valuation%20is%20a%20type%20of%20financial
Related Questions
Chapter 13, Question 6. Attached is a similar question with answers. Please answer the same four parts for the new question
arrow_forward
8 https://www.linkedin.com/learning/exams/summative/courses/accounting-foundations-2018
NG
What is the best way for a small hardware store to compete against Home Depot, when Home Depot can
charge less for the same products?
Select an answer:
Focus on customer service, and create relationships.
Try to convince Home Depot to close its store.
Buy cheaper, inferior products.
Try to find suppliers who will charge less for their products.
Skip
Previous
e to search
arrow_forward
Use The Table in the picture in the Image and then creat a Pie chart and Answer the following Question (50words)
Scenario: You have been recruited as a new graduate trainee to support the Managing Director of Zarraffa’s Coffee. You are required to conduct a comprehensive analysis of the café and coffee shop industry and market dynamics in Australia.
arrow_forward
Need your help please. Thank you
arrow_forward
Please help me fix c. The ones with x's are incorrect answers. Please help me find the correct answers. Thanks!
arrow_forward
Hide FeedbackShow All Feedback
Check My Work Feedback
Post Submission Feedback
Solution
arrow_forward
Instructions:
The answer should be with quality material
The Case Study’s the copy must be upload on LMS. Late submission loses one mark.
Question:
Financial decisions often place heavier emphasis on one type of financial statement over the others. Consider each of the following hypothetical situations independently.
An investor is considering purchasing common stock of the 24/7 Fitness company. The investor plans to hold the investment for at least 3 years.
Xerox is considering extending credit to a new customer. The terms of the credit would require the customer to pay within 60 days of receipt of goods.
The president of American Airlines is trying to determine whether the company is generating enough cash to increase the amount of dividends paid to investors in this and future years, and still have enough cash to buy new flight equipment as it is needed.
PNC Bank is considering extending a loan to a small company. The company would be required to make…
arrow_forward
assume that you are planning to purchase a new laptop for school, work, and home use. go to the website of two computer manufacturers and make a selection. complete the following items and questions. compare the following items for your selections in their financial statements. revenues for products, revenues for services, cost of goods sold, accounts receivable, inventories, accounts payable, and research ad development. what are some factors that can impact the gross profit of a merchandise company? one item that can help investors understand the relationship between net sales and net profits is the gross profit rates. find the financial information needed to calculate the gross profit rate for your two selected companies.
arrow_forward
Please help, this is for financial mathematics, thank you so much!!!!!
arrow_forward
Put it in Oder
arrow_forward
Analyzing a cost-volume-profit graph
Nolan Rouse is considering starting a Web-based educational business, e-Prep MBA. He plans to offer a short-course review of accounting for students entering MBA programs. The materials would be available on a password-protected Web site; students would complete the course through self—study. Rouse would have to grade the course assignments, but most of the work would be in developing the course materials, setting up the site, and marketing. Unfortunately, Rouse’s hard drive crashed before he finished his financial analysis. However, he did recover the following partial CVP chart:
Requirements
Label each axis, the sales revenue line, the total costs line, the fixed costs line, the operating income area, and the breakeven point.
It Rouse attracts 300 students to take the course, will the venture be profitable Explain your answer.
What are the breakeven sales in students and dollars?
arrow_forward
After reading through the information I'm a little confused on a few of the equations and why and where they pull info from each of the answers. After reading through the problem the three things needed are:
A. Operating Income (annual) for the new WSM service?
B1. What annual operating income can WSM expect from adopting Internet ticket sales? (More info is in the picture attached in the b-1. section)
C. Ignoring the information in requirement (b), how many discounted tickets would WSM have to sell annually to earn an operating income of $4,800,000? Assume that the annual number of flights remains at 1,400 and that the discounted tickets would be evenly divided across the 1,400 flights.
arrow_forward
First image is with the answers that are given and the questions scenarios . Second image is with more question scenarios .
I need help and explanations on what answer to match with what scenarios .It’s about the best way for funding business in the given scenario
arrow_forward
Please do not give solution in image format thanku
arrow_forward
Scenario:
You're a savvy entrepreneur that wants to open an ice cream shop downtown near the college campus. However, you remember your lesson on financial planning and decide it's a good idea to project cash flows for your business before investing your time and money in the operation. Your objective is break-even on a cash basis within 3 years of opening shop - Otherwise, the business opportunity is not worth your time.
You make the following assumptions and notes:
Each ice cream cone is sold for ₱25 and costs ₱25 to make in materials.
You plan on selling 10,000 cones in year 1, 15,000 cones in year 2, and 25,000 cones in year 3.
Sales projections after year 3 are difficult to make, but you know that they will not be lower than 25,000 cones per year.
Your lease for the business location is ₱125,000 annually, and your lease for the ice cream equipment is ₱62,500 annually.
You plan on hiring part-time staff to help you during peak season. You assume that this would cost ₱62,500…
arrow_forward
in text form with proper workings and explanation for each and every part and steps with concept and introduction no AI no copy paste remember answer must be in proper format with all working!!!!!!!
arrow_forward
I need help with question 6 on how to create the customer pivot table as given. Also, can you provide the steps of how to do that in Excel? Also, please provide the steps in order to solve the problem for Finance.
arrow_forward
not use ai solution given correct answer General Accounting Question
arrow_forward
Please provide step by step guidiance with workings
arrow_forward
help please answer in text form with proper workings and explanation for each and every part and steps with concept and introduction no AI no copy paste remember answer must be in proper format with all working!
arrow_forward
3
After researching the cost of a shredder for your online business, you settle on a more expensive shredder because the credit terms
are better and cash flow is a challenge for you during the summer months. If you buy a shredder for $1,399 with net 30 terms on
August 22, how much do you need to pay on September 5? (Use Table 7.1)
Note: Do not round intermediate calculations. Round your answer to the nearest cent.
"
15
Payable amount
arrow_forward
Use the Graph in the picture To answer the following Question . (100words)
Scenario: You have been recruited as a new graduate trainee to support the Managing Director of Zarraffa’s Coffee. You are required to conduct a comprehensive analysis of the café and coffee shop industry and market dynamics in Australia.
arrow_forward
Sheryl Sandberg and Mark Zuckerberg of Facebook are introduced in the chapter’s opening feature. Assume that they are considering two options. Plan A. Facebook would begin selling access to a premium version of its website. The new online customers would use their credit cards. The company has the capability of selling the premium service with no additional investment in hardware or software. Annual credit sales are expected to increase by $250,000. Costs associated with Plan A: Additional wages related to these new sales are $135,500; credit card fees will be 4.75% of sales; and additional recordkeeping costs will be 6% of sales. Premium service sales will reduce advertising revenues for Facebook by $8,750 annually because some customers will now only use the premium service. Plan B. The company would begin selling Facebook merchandise. It would make additional annual credit sales of $500,000. Costs associated with Plan B: Cost of these new sales is $375,000; additional recordkeeping…
arrow_forward
Please do not give solution in image format thanku
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you

Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning

Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781285867977
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning

Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Related Questions
- Chapter 13, Question 6. Attached is a similar question with answers. Please answer the same four parts for the new questionarrow_forward8 https://www.linkedin.com/learning/exams/summative/courses/accounting-foundations-2018 NG What is the best way for a small hardware store to compete against Home Depot, when Home Depot can charge less for the same products? Select an answer: Focus on customer service, and create relationships. Try to convince Home Depot to close its store. Buy cheaper, inferior products. Try to find suppliers who will charge less for their products. Skip Previous e to searcharrow_forwardUse The Table in the picture in the Image and then creat a Pie chart and Answer the following Question (50words) Scenario: You have been recruited as a new graduate trainee to support the Managing Director of Zarraffa’s Coffee. You are required to conduct a comprehensive analysis of the café and coffee shop industry and market dynamics in Australia.arrow_forward
- Instructions: The answer should be with quality material The Case Study’s the copy must be upload on LMS. Late submission loses one mark. Question: Financial decisions often place heavier emphasis on one type of financial statement over the others. Consider each of the following hypothetical situations independently. An investor is considering purchasing common stock of the 24/7 Fitness company. The investor plans to hold the investment for at least 3 years. Xerox is considering extending credit to a new customer. The terms of the credit would require the customer to pay within 60 days of receipt of goods. The president of American Airlines is trying to determine whether the company is generating enough cash to increase the amount of dividends paid to investors in this and future years, and still have enough cash to buy new flight equipment as it is needed. PNC Bank is considering extending a loan to a small company. The company would be required to make…arrow_forwardassume that you are planning to purchase a new laptop for school, work, and home use. go to the website of two computer manufacturers and make a selection. complete the following items and questions. compare the following items for your selections in their financial statements. revenues for products, revenues for services, cost of goods sold, accounts receivable, inventories, accounts payable, and research ad development. what are some factors that can impact the gross profit of a merchandise company? one item that can help investors understand the relationship between net sales and net profits is the gross profit rates. find the financial information needed to calculate the gross profit rate for your two selected companies.arrow_forwardPlease help, this is for financial mathematics, thank you so much!!!!!arrow_forward
- Put it in Oderarrow_forwardAnalyzing a cost-volume-profit graph Nolan Rouse is considering starting a Web-based educational business, e-Prep MBA. He plans to offer a short-course review of accounting for students entering MBA programs. The materials would be available on a password-protected Web site; students would complete the course through self—study. Rouse would have to grade the course assignments, but most of the work would be in developing the course materials, setting up the site, and marketing. Unfortunately, Rouse’s hard drive crashed before he finished his financial analysis. However, he did recover the following partial CVP chart: Requirements Label each axis, the sales revenue line, the total costs line, the fixed costs line, the operating income area, and the breakeven point. It Rouse attracts 300 students to take the course, will the venture be profitable Explain your answer. What are the breakeven sales in students and dollars?arrow_forwardAfter reading through the information I'm a little confused on a few of the equations and why and where they pull info from each of the answers. After reading through the problem the three things needed are: A. Operating Income (annual) for the new WSM service? B1. What annual operating income can WSM expect from adopting Internet ticket sales? (More info is in the picture attached in the b-1. section) C. Ignoring the information in requirement (b), how many discounted tickets would WSM have to sell annually to earn an operating income of $4,800,000? Assume that the annual number of flights remains at 1,400 and that the discounted tickets would be evenly divided across the 1,400 flights.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningFundamentals of Financial Management (MindTap Cou...FinanceISBN:9781285867977Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningFundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning

Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning

Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781285867977
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning

Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning