Shown on the next page are comparative income statements for McDonald's for 2005, 2006, and 2007.

1. There are two kinds of McDonald's restaurants'restaurants that McDonald's itself owns and restaurants owned by McDonald's franchisees. For each of the three years, prepare a mini income statement for McDonald's containing the following items:

Sales by company-operated restaurants

Less: Food & paper

Less: Payroll & employee benefits

Less: Occupancy & other operating expenses

= Operating income from company-operated restaurants

2. From the mini income statements prepared in (1), prepare common-size income statements for McDonald's company-operated restaurants for the three years 2005–2007.

3. Comment on the common-size income statements prepared in (2).

4. Where does McDonald's get more of its total operating income'from company owned restaurants or from franchiseoperations?

McDonald's Consolidated Statement of Income Year Ended December 31 (In millions, except per share data) 2007 2006 2005 $16,610 $15.4024 $14.017.9 54928 22,786.6 20,895 9,117.3 Revenues from franchised and affiliated restaurants 6.175.6 5,099.4 Total revenues Operating costs and expenses Company-operated restaurant expenses Food & paper 5,4874 5.1118 4,760.2 31.6 3,993,6629 3,92273,8022 3.4955 1.021.4 2,367.0 2.295.7 2,1184 Payroll & employee benefits 4,33 1.139.7 1.670.3 Occupancy & other operating expenses 1058.1 Selling, general & administrative expenses Impairment and other charges (credits), net-.... Other operating (income) expense, net 134.2 (28.4) (IL)69.1103.3 16.462.2 5.133.3 Total operating costs and expenses Operating income Interest expense-net of capitalized interest 3.879.0 44 4.433.0 3,984.0 of $6.9, $5.4 and $4.9 Nonoperating income, net Income from continuing operations before provision 401.9 (103.2) (1233) 410. 356.2 (324) for income taxes Provision for income taxes Income from continuing operations Income from discontinued operations 3,572. ,237. 3.660.2 .288.3 0826 2.335.0 2,866. 2,577.6 4.154.4 (net of taxes of $34.5, $101.9 and $16.8) Net income 678.1 $2,395. 3,544.2 24.6 2,6022 60.