Kenneth McCoin is valuing McDonald”s Corporation and performing a sensitivity analysis on his valuation. He uses a single-stage FCFE growth model. The “base case” values for each of the parameters in the model are given in the table below, along with possible “low” and “high” estimates for each variable.
| Variable Don't use plagiarized sources. Get Your Custom Essay on use the base case values to estimate the current value of mcdonald s corporation 543659 For $10/Page 0nly | Base Case Value | Low Estimate | High Estimate |
| Normalized FCFE, | $0.88 | $0.70 | $1.14 |
| Risk-free rate | 5.08% | 5.00% | 5.20% |
| Equity risk premium | 5.50% | 4.50% | 6.50% |
| Beta | 0.7 | 0.6 | 0.8 |
| FCFE perpetual growth rate | 6.40% | 4.00% | 7.00% |
A. Use the base case values to estimate the current value of McDonald”s Corporation.
B. Calculate the range of stock prices that would occur if the base case value for FCFEo were replaced by the low and high estimate for FCFEo. Similarly, using the base case values for all other variables, calculate the range of stock prices caused by the using the low and high values for beta, the risk-free rate, the equity risk premium, and the growth rate. Rank the sensitivity of the stock price to each of the five variables based on these ranges.
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