You have been hired to evaluate McDonalds that operates fast food restaurants. You plan to do a
Question:
You have been hired to evaluate McDonalds that operates fast food restaurants. You plan to do a quick valuation based on a simplified 2stage model. The last known operating profit (EBIT) of the company was 300 million. The company reinvested 50 of it's NOPAT last year and plans to keep this reinvestment rate constant for the next three years. The expected growth for next three years is forecasted as 16 a year. The marginal tax rate for the company is 25. After three years McDonalds is expected to become a mature company with only 2 growth rate in perpetuity and the reinvestment rate declining to 25 of it's projected NOPAT Company liabilities include 500 million as interest bearing debt McDonalds has also noncore financial assets with current market value equal to 60 million. The company cost of capital is currently estimated as 12. The company has 10 million shares outstanding. Based on the data above, find the market value of equity and the intrinsic value of the share.
