XIV.

Valuation

Relative Valuation (PE Valuation)

In conducting our PE valuation, we use the expected earnings for 2005 and an expected

P/E ratio derived from a regression analysis with the P/E of the S&P 500 and MCD itself.

We believe that the current P/E for MCD of 14.8 is very low both based on the historical

PE ratios of the company and its current financial position.

Expected P/E for 2005

In order to derive the expected P/E we ran several regressions between the PE of the S&P

500 and that of MCD:

1. The first regression used the S&P 500 annual PE for the last 10 years. For MCD we

found the monthly average PE and then based on the monthly averages PE we calculated

the average annual PE.

SPX MCD
2004 20.962 17.324
2003 28.978 15.297
2002 41.449 16.664
2001 36.892 19.785
2000 29.267 23.183
1999 32.899 32.188
1998 26.703 26.19
1997 22.321 21.509
1996 19.213 23.378
1995 16.516 20.922
1994 19.588 18.857

Correlation 0.006
Regression MCD = 21.293
Line +0.004SPX
21.37

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