Business Venture Analysis

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Business Venture Analysis
McDonalds vs. Burger King
2
Team 1 Members Delegation

• Nancy Macias Organization
• Brian Myers Summarization
• Eliseo Sanchez Research Organization
• Masis Haroian Techie

3
Scenario

• A 30 year old person with a business degree has
  just inherited 300,000.00 and is considering
  opening a fast food franchise. The two franchises
  that are being considered are
• McDonalds
• Burger King

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Analysis Assumptions

• Life Span of 20 years (n 20 years)
• Same Resale Value at the end of 20 years
• Equivalent Cost for Land and Building
• Equivalent Average Annual Sales and Profit
• Location, Volume, Size of Real Estate not taken
  in Consideration (no impact on the analysis)
• MARR 15
• Interest Rate 10

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McDonalds Fact Sheet

• Initial Franchise Fee 45K
• Equipment Pre-Opening Costs 900K
• Land Building 1.0 million
• (only if a new building has to be built)
• Franchise Fee 12.5
• Annual Sales 1.3 million Annual Net Profit
  500K
• (after taxes, fees and other operating costs)

6
Burger King Fact Sheet

• Initial Franchise Fee 50K
• Equipment Pre-Opening Costs 750K
• Land Building 1.0 million
• (only if a new building has to be built)
• Franchise Fee 8.5
• Annual Sales 1.3 million
• Annual Net Profit 500K
• (after taxes, fees and other operating costs)

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Quick Comparison

• McDonalds
• 12.5 Franchise Fee
• 900,000.00 pre-opening costs
• Annual Costs 162,500.00

• Burger King
• 8.5 Franchise Fee
• 750,000.00 pre-opening costs
• Annual Costs 110,500.00

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Analysis Results Conclusion

• Analysis Methods
• Incremental Rate of Return Analysis ?ROR
• Benefit to Cost Ratio
• Annual Worth Analysis
• (note all these methods will result in the same
  answer if used properly)
• (we primarily used ?ROR primarily to find the
  better choice)
• Results
• ?ROR 35.8
• Since ?RORMARR, higher cost alternative is
  chosen, Burger King
• B/C AW Analysis confirm results

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Sensitivity Analysis (1)
Varying the Franchise Fee from 9.0 to 14.0,
Burger King still is a better alternative
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Sensitivity Analysis (2)
Varying annual profit from 300K to 700K
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Resources

• http//www.bk.com/ (official website)
• http//mcdonalds.com/ (official website)
• http//www.franchise-zone.com/food_franchises.shtm
  l
• Wall Street Journal
• Essentials of Engineering Economic Analysis
  (textbook), Donald Newnan, Jerome Lavelle and Ted
  Eschenbach,2nd edition, 2002

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Course Related Useful Websites

• http//www.fincalc.com/
• http//www.mikemillerfinancial.com/calculators.cfm
  ?ID125
• Provides several calculator for
  retirement,taxation,savings,investments,etc.
• http//www.getobjects.com/index.html
• Provides Cash Flow Diagram explanations and
  several examples (PV,FV and others)

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THE END