MC DONALDS VS BURGER KING
Each student is required to perform a research on a Corporate Finance project that involves writing a report (20-25 pages) on a publicly traded company based on its available current financial data. The project involves two parts, namely,
1) The Comprehensive Financial Analysis of a Company and
2) The Computation of Cost of Capital of the same company.
1) Comprehensive Financial Analysis of a company:
The students are required to evaluate the company based on thetrends in its financial ratios over time and evaluate them against the industry standard (a major competitor).
Details, including the selection of the company (for time-series evaluation) and its competitor (for cross-section evaluation), will be discussed throughout the semester. In general, the ratio analysis is done in the following steps:
•In writing, submit the name of the company (publicly traded) and the name of its major competitor company within the first two weeks of classes for approval.oSelect the company and its competitor you want to use for your Financial Management Project and submit the company names to me ASAP.
I will make sure that no two students select the same companies. Therefore, sooner you provide the company names to me, more would be the chances that I will allow you to keep the companies (i.e., nobody else has already selected the company). By the beginning of second week of the class, everybody will be required to select the company and its competitor for analysis. The student will not be allowed to complete the project in the course, if the submissions with publicly-traded company names are not received by the instructor by the deadline.
• Evaluate the company using thefollowing ratios: Current, Quick, Average Collection Period, Accounts Receivable Turnover, Inventory Turnover, Average Age of Inventory, Inventory to Net Working Capital, Total Asset Turnover, Fixed Asset Turnover, Fixed Charge Coverage, Basic Earning Power, Debt Ratio, Debt to Equity, Long-term Debt to Equity, Times Interest Earned, Total Profit Margin, Operating Profit Margin, Net Profit Margin, Return on Investment, Return on Asset, Return on Equity, Price-Earnings, Market-Value to Book-Value, Cash Flow per Share, Dividend Payout, and Dividend Yield ratios.
• Evaluate the company using thefollowing accounting measures: Total Net Operating Capital, Net Operating Working Capital, Gross Investment in Operating Capital, Net Operating Profit after Taxes, Free Cash Flow, Operating Cash flow, Return on Invested Capital, Market Value Added and Economic Value Added.
• Use the ratio values and accounting measures to show performance trends(time-series analysis)of the company (at least for five years).
• Find industry quartiles for each of the ratio and accounting measures and evaluate the company ratios and accounting measures against the industry norm (a major competitor company)(cross-section analysis).
• Write the analysis of the company on each of the ratio and accounting measurementareas (both time-series and cross-sectional analyses).
• Use the web resourcesavailable to obtain information on both time-series and cross-section ratios and accounting measures.
• Make sure to attach all the relevant printouts such as ratios and financial statementsyou have obtained from various web sources with your final write-up.
2) Computation of Cost of Capital of the Company:
In the second part,the cost of capitalshould be computed using the tools and techniques given inChapter 12and utilizing the most recent data (different web-based resources should be used to find
necessary financial data such as common and preferred stocks, bond prices, and beta coefficient for the company). It should be done in the following steps:
• Compute theafter-tax cost of debtof the company.
• Compute thecost of preferred stockof the company.
• Compute thecost of internal equitycapital using both Dividend Valuation Model and CAPM approach.
• Compute thecost of external equitycapital.
• Compute thecurrent capital structure(using the current financial statements of the company) to determine appropriate weights for different sources of capital.
• Compute theWeighted Average Cost of Capitalthe company should use to evaluate new projects.
• Use the web resourcesavailable to obtain information on both corporate growth rate, company beta, and calculation of cost of equity.
• Make sure to attach all of the cost of capital printouts(submit them as attachments through the Assignment facilityin the Black Board) you have obtained from various web sources with your final write-up.
3) General Project Requirements:
• A report(20-25 pages)from this research is to be turned in byDue Date: February 26, 2018 (Monday). Details will be discussed throughout the semester.
•Use the Assignment facility in the Black Board to submit your Corporate Finance Project.
• The report must be of professional quality in terms of format, typing, grammar, spelling, etc. Severe grade reductions will result from failure to present a professional document. It is expected that there will not be any misspelled words or typos.