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Subway2 40
Subway2 40
In order to get R, we use Capital Asset Pricing Model (CAPM) which the formula
is as following:
R = Rf + βa * ( Rm – Rf )
o Rf : Risk free rate. We use current 10-year T-Bill rate which is 4.05%.
o βa : Beta of the security which McDonald’s beta value is 0.83 from
Yahoo.com/finance.
o Rm : Expected market return. We use 9% which is based on S&P average
return over past 20 years.
Revenue –
McDonald’s management in the MD&A stated that the company is expected to generate
long term systemwide sales and revenue growth of 3% to 5%. We believe that these
figures accurately represent the company’s potential long term growth given its maturity.
Nevertheless, given the current developments within the company and the company’s
effective Plan to win growth with exceed those numbers for the next few years as it was
already shown by the promising financial results of 2004 and Q1 2005. As a result, we
adopt the management’s expectation regarding revenue growth for the long term (3-5%)
but we expect a short period of exceeding growth for fiscal years 2005, 2006 and 2007.
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