INSTRUCTIONS: INSTRUCTIONS: Let%u2019s say McDonald%u2019s needs to raise

INSTRUCTIONS:

INSTRUCTIONS:

Let%u2019s say McDonald%u2019s needs to raise $1 billion to expand into Africa. Determine whether McDonald%u2019s should have used all debt
all-stock or a 50-50 combination of debt and stock to finance this market-development strategy. Assume a 38% tax rate 5% interest rate McDonald%u2019s stock
price of $50 per share and an annual dividend of $0.30 per share of common stock. The EBIT range for 2010 is between $6.332 billion and $9 billion. A total of
1 billion shares of common stock are outstanding. Develop an EPS/EBIT chart to reflect your analysis.

Describe the relevance of the EPS/EBIT chart and why it is significant with respect to strategy implementation.

TEACHING NOTES:

Amount needed to raise: $1 billion

Interest rate: 5%

Tax rate: 38%

Stock price: $50

Annual dividend: $0.30 per share

Number of shares outstanding: 1 billion