McDonald's Corporation

In millions of U.S. dollars except per share FY 2014 FY 2015

Net Fixed Assets $30,041.90 $28,295.70
Operating Current Assets $4,185.50 $9,643.00
Operating Current Liabilities $2,747.90 $2,950.40
Net Operating Working Capital $1,437.60 $6,692.60
Total Operating Capital $31,479.50 $34,988.30
Δ Total Operating Capital -$1,976.80 $3,508.80
EBIT $7,949.20 $7,145.50
Tax Rate (in percentage) 35.46 30.91
EBIT(1-T) $5,130.41 $4,936.83
Free Cash Flow $7,107.21 $1,428.03
Weighted Average Cost of Capital (in percentage) 5.61 6.19
Horizon Value $126,688.30 $23,069.89
Value of Operations $6,729.68 $1,344.78
Short Term Investments 0 0
Total Intrinsic Value $6,729.68 $1,344.78
Value of Debt 12857.8 16436.6
Value of Preferred Stock 0 0
Intrinsic Value of Equity -$6,128.12 -$15,091.82
Number of Shares 973.2 918.23
Intrinsic Value per Share -$6.30 -$16.44
Dividends
Capital Gains Yield for McDonald's stock

Dividend yield for Mcdonald's stock

FY 2016
$26,175.30
$4,848.60
$3,468.30
$1,380.30
$27,555.60
-$7,432.70
$7,744.50
31.74
$5,286.40
$12,719.10
6.63
$191,841.56
$11,928.25
0
$11,928.25
24732.3
0
-$12,804.05
830.44
-$15.42
 Arby's Restaurant Group Inc.
In millions of U.S. dollars except per share FY 2014 FY 2015
Net Fixed Assets $545.70 $618.00
Operating Current Assets $100.80 $111.40
Operating Current Liabilities $111.80 $144.10
Net Operating Working Capital -$11.00 -$32.70
Total Operating Capital $534.70 $585.30
Δ Total Operating Capital $4.80 $50.60
EBIT 91.1 105.3
Tax Rate (in percentage) 36.41 32.69
EBIT(1-T) 57.93049 70.87743
Free Cash Flow $53.13 $20.28
Weighted Average Cost of Capital (in percentage) 4.81 5.08
Horizon Value $1,104.58 $399.16
Value of Operations $50.69 $19.30
Short Term Investments 0 0
Total Intrinsic Value $50.69 $19.30
Value of Debt 121.1 752.3
Value of Preferred Stock 0 0
Intrinsic Value of Equity -$70.41 -$733.00
Number of Shares (Private Company) N/A N/A
Intrinsic Value per Share (Private Company) N/A N/A
FY 2016
$717.80 546.6
$103.40 85.5
$149.90 102.2
-$46.50 -16.7
$671.30 529.9
$86.00
131.4
35.33
84.97638
-$1.02
5.73
-$17.86
-$0.97
0
-$0.97
777
0
-$777.97
N/A
N/A
 McDonald's Financial Analysis and Corporate Valuation
FY 2014 FY 2015 FY 2016
Liquidity Ratios
Current Ratio 1.520 3.270 1.400
Quick Ratio 1.200 3.050 0.780
Asset Management Ratios - - -
Fixed Asset Turnover Ratio 0.890 0.870 0.900
Days Sales Outstanding 16.850 18.050 20.610
Inventory Turn Over Ratio 145.360 148.730 181.350
Debt Management Ratios - - -
Debt to Equity Ratio 116.200 340.330 -11.740
Market Debt Ratio 0.190 0.270 0.250
Liabilities to Assets Ratio 0.620 0.810 1.070
Ability to pay interest - - -
Times Interest Ratio 14.280 11.360 8.780
Profitability Ratios
Net Profit Margin 17.340 17.820 19.030
Basic Earning Power Ratio 0.232 0.188 0.250
Return on Total Assets 13.430 12.550 13.590
Return on Common Equity 32.970 45.430 -2.126
Market Value Ratios - - -
Price to Earning Ratio 15.470 19.650 22.470
Price to Cash Flow Ratio 7.840 7.710 8.670
Market to Book Ratio 0.140 0.070 -0.020
Economic Value Added 3364.410 2771.050 3459.459
Market Value Added 78335.440 101391.790 103285.500
DuPont Equation 37.020 63.890 -212.560
Free Cash Flows $7,107.21 $1,428.03 $12,719.10
 -2.126071769

net sales/avg fixed assets 27441.3 25413 24621.9

31576.2 30041.9 28295.7 26175.3
30809.05 29168.8 27235.5
0.890689586339 0.871239132223 0.904037010519

ebit/int exp 7949.2 7145.5 7744.5

556.4 628.8 881.2
14.28684399712 11.3637086514 8.788583749433
total assets 34227.4 37938 31023.9
0.232246679561 0.188346776319 0.249630123872

market cap
nopat

Let rsL be the

Let rsU

Let wd

Let
rsL = rsU + (rsU-rd)(wd/ws)
rsU=ws+rsL + wdrd

b=bU + (bU-bD)(wd/ws)
bD = (rd-rRF)/RPM
 Arby's Financial Analysis and Corporate Valuation
FY 2014 FY 2015 FY 2016
Liquidity Ratios
Current Ratio 0.9 0.77 0.69
Quick Ratio 0.61 0.41 0.35
Asset Management Ratio- - -
Fixed Asset Turnover Ratio 1.3 1.41 1.36
Days Sales Outstanding 6.87 7.25 7.53
Inventory Turn Over Ratio 82.69 83.41 88.33
Debt Management Ratios
Debt to Equity Ratio 0.77 -2.26 -2.8
Market Debt Ratio N/A N/A N/A
Liabilities to Assets Ratio 0.66 1.48 1.35
Ability to pay interest
Times Interest Ratio 5.32 4.65 2.49
Profitability Ratios
Net Profit Margin 0.04 0.05 0.04
Basic Earning Power Ratio 0.14 0.14 0.16
Return on Total Assets 7% 8% 7%
Return on Common Equity 21% -17% -19%
Market Value Ratios
Price to Earning Ratio N/A N/A N/A
Price to Cash Flow Ratio N/A N/A N/A
Market to Book Ratio N/A N/A N/A
Economic Value Added 32.2 41.16 46.5
Market Value Added N/A N/A N/A
DuPont Equation 0.21 -0.17 -0.19
Free Cash Flows $47.20 $31.80 $33.10
 McDonalds's Capital Structure for FY 2014
In millions of U.S. dollars except per share
Input Data:
Tax Rate 35.46%
Debt (D) $14,935.70
# of Shares 973.2
Stock Price (P) $$93.70
NOPAT $5,130.41
Free Cash Flow (FCF) $7,107.21
Growth Rate in FCF -3.47%
Value of Stock (S) $12,853.40
Cost of Capital:
WACC 5.61%

Gains Attributed to this Capital Structure

McDonalds's Capital Structure for FY 2015

In millions of U.S. dollars except per share
Input Data:
Tax Rate 30.91%
Debt (D) $24,122.10
# of Shares 918.23
Stock Price (P) $118.14
NOPAT $4,936.83
Free Cash Flow (FCF) $1,428.03
Growth Rate in FCF 13.95%
Value of Stock (S) $7,087.90
Cost of Capital:
Cost of Capital:
WACC 6.19%
Gains Attributed to this Capital Structure $

McDonalds's Capital Structure for FY 2016

In millions of U.S. dollars except per share
Input Data:
Tax Rate 31.74%
Debt (D) $25,878.50
# of Shares 830.44
Stock Price (P) $121.72
NOPAT $5,286.40
Free Cash Flow (FCF) $12,719.10
Growth Rate in FCF -10.30%
Value of Stock (S) -$2,204.30
Cost of Capital:
WACC 6.63%

Gains Attributed to this Capital Structure

16
28.7
0.5574912892
al Structure for FY 2014

Capital Structure:
Market Value of Equity $90,223.70
Total Value (V=D+S) $27,789.10
% financed with Debt (wd=D/V) 53.75%
% financed with stock (ws=S/V) 46.25%

Estimated Intrinsic Value:

Value of Operations: 6729.67
Short Term Investments 0
Estimated Total Insrinsic Value 6729.67
Debt $14,935.70
Estimated Intrinsic Value of Equity -6128.121295
Number of Shares 973.2
Estimated intrinsic price per share -6.296877615
$837.89

al Structure for FY 2015

Capital Structure:
Market Value of Equity 107,129.40
Total Value (V=D+S) $31,210.00
% financed with Debt (wd=D/V) 77.29%
% financed with stock (ws=S/V) 22.71%

Estimated Intrinsic Value:

Value of Operations: 1344.78
Short Term Investments 0
Estimated Total Insrinsic Value 1344.78
Debt $24,122.10
Estimated Intrinsic Value of Equity -15091.81617
Number of Shares 918.23
Estimated intrinsic price per share -16.435769
 $1,493.16

al Structure for FY 2016

Capital Structure:
Market Value of Equity 99,725.20
Total Value (V=D+S) $23,674.20
% financed with Debt (wd=D/V) 109.31%
% financed with stock (ws=S/V) -9.31%

Estimated Intrinsic Value:

Value of Operations: 11928.25
Short Term Investments 0
Estimated Total Insrinsic Value 11928.25
Debt $25,878.50
Estimated Intrinsic Value of Equity -12804.04744
Number of Shares 830.44
Estimated intrinsic price per share -15.41838958

$1,715.74

1.560896

$4,046.80
 Arby's Capital Structure for FY 2014
In millions of U.S. dollars except per share
Input Data:
Tax Rate 36.41%
Debt (D) $169.30
# of Shares N/A
Stock Price (P) $17.43
NOPAT $57.90
Free Cash Flow (FCF) $53.13
Growth Rate in FCF 77.11%
Value of Stock (S) $219.90
Cost of Capital:
WACC 4.81%

Note: Arby's is a privately held company.

Note: Book value per share is taken as stock price.
Gains Attributed to this Capital Structure

Arby's Capital Structure for FY 2015

In millions of U.S. dollars except per share
Input Data:
Tax Rate 32.69%
Debt (D) $793.70
# of Shares N/A
Stock Price (P) -$259.88
NOPAT $70.90
Free Cash Flow (FCF) $20.28
Growth Rate in FCF -32.61%
Value of Stock (S) -$351.60
Cost of Capital:
WACC 5.08%

Note: Arby's is a privately held company.

Note: Book value per share is taken as stock price.
Gains Attributed to this Capital Structure

Arby's Capital Structure for FY 2016

In millions of U.S. dollars except per share
Input Data:
Tax Rate 35.33%
Debt (D) $811.90
# of Shares N/A
Stock Price (P) N/A
NOPAT $85
Free Cash Flow (FCF) -$1.02
Growth Rate in FCF 4.15%
Value of Stock (S) -$289.60
Cost of Capital:
WACC 5.73%

Note: Arby's is a privately held company.

Note: Book value per share is taken as stock price.
Gains Attributed to this Capital Structure

$94.99
Structure for FY 2014

Capital Structure:
Market Value of Equity N/A
Total Value (V=D+S) $389.20
% financed with Debt (wd=D/V) 43.50%
% financed with stock (ws=S/V) 56.50%

Estimated Intrinsic Value:

Value of Operations: 50.69
Short Term Investments 0
Estimated Total Insrinsic Value 50.69
Total Debt $169.30
Estimated Intrinsic Value of Equit -70.4078046
Number of Shares N/A
Estimated intrinsic price per sharN/A
$8.14

Structure for FY 2015

Capital Structure:
Market Value of Equity N/A
Total Value (V=D+S) $442.10
% financed with Debt (wd=D/V) 179.53%
% financed with stock (ws=S/V) -79.53%

Estimated Intrinsic Value:

Value of Operations: 19.29
Short Term Investments 0
Estimated Total Insrinsic Value 19.29
Total Debt $793.70
Estimated Intrinsic Value of Equit -733.0028645
Number of Shares N/A
Estimated intrinsic price per sharN/A
 $40.32

Structure for FY 2016

Capital Structure:
Market Value of Equity N/A
Total Value (V=D+S) $522.30
% financed with Debt (wd=D/V) 155.45%
% financed with stock (ws=S/V) -55.45%

Estimated Intrinsic Value:

Value of Operations: -0.968
Short Term Investments 0
Estimated Total Insrinsic Value -0.968
Total Debt 811.9
Estimated Intrinsic Value of Equit -777.9681453
Number of Shares N/A
Estimated intrinsic price per sharN/A

$46.52
 Steps involved in the calculation of APV model
1- Calculate the Unlevered cost of equity rSU using the pre-merger leveraged cost of equity and pre-m
beta for Arby's is assumed to be 1 as it is a privately held company.
wd 0.43 Note: wd and ws are taken for the year 2014 because for 2015 a
ws 0.57
rrf (assumed) 7%
Total debt $169.40
Interest Expense $17.10
cost of debt rd 10.09%
Risk premium (assume 4%
rsL becomes 11%
rsU 10.60%

2-Calculate the Horizon value of the un-leveraged firmas the present value of the free cash flows afte
Unlevered Horizon Val(2014 FCF)(1+g)/(rsU-g) 436.5515
3-Calculate the horizon value of the tax shields as the present value of the interest tax shields after t
Tax Shield EBIT(Tax Rate) 33.16951
Tax Shield Horizon Value $285.39
4- Calculate the value of the unleveraged firm as the present value of the horizon value of the unleve
value of the free cash flows until the horizon, discounted ar rsU
Unlevered Value of Operations $436.55
5-Calculate the value of the tax shields as the present value of the horizon value of the tax shields pl
tax shields until the horizon, discounted ar rSU
Value of Tax Shields $285.39
6-Add the value of the Unlevered firm to the value of the tax shields to get the value of operations.
Value of Operations $721.94
7-Add any the value of any non-operating assets and subtract the value of all debt to get the current
Non-Operating Asset $545.70
Value of all Debt $169.30
Current Equity Value $1,098.34
Market Value of Arby's (Privately hel Not Applicable
Case 1
If merger takes place at Value of Equity then no gain to either Arby's or McDonalds
Case 2
If merger takes place at Value less than that of value of Equity then stockholders of McDonald's will g
Case 3
If merger takes place at Value greater than the of Equity then Arby's stockholders gain
raged cost of equity and pre-merger capital structure

year 2014 because for 2015 and 2016, the value of equity is negative.

lue of the free cash flows after the horizon discounted

the interest tax shields after the horizon discounted at rsU

he horizon value of the unleveraged firm plus the prescurrent value o 219.618

zon value of the tax shields plus the pre merger premium

get the value of operations.

of all debt to get the current equity value.

McDonalds

ckholders of McDonald's will gain.

ockholders gain
12.616179

139.77
Steps involved in the calculation of APV model
1- Calculate the Unlevered cost of equity rSU using the pre-merger leveraged cost of equity and pre-merger capital struc
beta for Arby's is assumed to be 1 as it is a privately held company.
wd 0.43 Note: wd and ws are taken for the year 2014 because for 2015 and 2016, the value of
ws 0.57
rrf (assumed) 7%
Total debt $169.40
Interest Expense $17.10
cost of debt rd 10.09%
Risk premium (a 4%
rsL becomes 11%
rsU 10.60%

2-Calculate the Horizon value of the un-leveraged firmas the present value of the free cash flows after the horizon discou
Unlevered Horizo(2014 FCF)(1+g)/(rsU-g) 436.5515
Tax Shield EBIT(Tax Rate) 33.16951
Tax Shield Horiz 285.3851384
Value of Operatio 359.3851384
3-Calculate the horizon value of the tax shields as the present value of the interest tax shields after the horizon discount
Tax Shield EBIT(Tax Rate) 33.16951
Tax Shield Horizon Value 285.385138394
4- Calculate the value of the unleveraged firm as the present value of the horizon value of the unleveraged firm plus the
value of the free cash flows until the horizon, discounted ar rsU
5-Calculate the value of the tax shields as the present value of the horizon value of the tax shields olus the present value
tax shields until the horizon, discounted ar rSU
6-Add the value of the Unlevered firm to the value of the tax shields to get the value of operations.
7-Add any the value of any non-operating assets and subtract the value of all debt to get the current equity value.
and pre-merger capital structure

2015 and 2016, the value of equity is negative.

flows after the horizon discounted ar rsU

12.616179
905.0851384
equity value of th 735.7851384

ds after the horizon discounted at rsU

he unleveraged firm plus the present current value of 219.618

hields olus the present value o merger premium 139.77

e current equity value.