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FIN561 Week 1 Homework (50 points)
Assume you are the CFO of McDonald’s Corporation. Your overall revenues have been steadily falling
since 2016, however, you’ve managed to keep net income fairly stable by reducing operating costs.
However, due to the economic effects of COVID19, your revenues again took a huge $1.2B hit in 2020.
It hasn’t escaped your attention that despite COVID KFC’s revenues increased by more than $34 million
in 2020! (Note: Up to this point, everything is based on actual financial statements. However, the next sentence is
a made-up scenario.) Unfortunately, it appears that McDonalds’ McNuggets are not in as much demand as
KFC’s chicken is among the quarantining and take-out populace.
1. You have created SWOT analyses (see below) of both McDonald’s and KFC to see if KFC might be
worth acquiring or aligning with in some way.
Using the Framework for Choosing a Path for Inorganic Growth section in Chapter 6 of your text
and the decision flowchart (Exhibit 6.20), determine the following.
a. (4 points) Based on your SWOT analysis, what inorganic growth opportunity would be
the best approach for McDonald’s to take with KFC as an acquisition target? Select only
one.
b. (6 points) Explain your reasoning in terms of what benefits, coordination, and/or
learning you expect to gain from your selected approach.
c. (6 points) Explain your reasoning in terms of McDonald’s need for ownership and
control.
d. (6 points) Explain your reasoning in terms of managing risk exposure.
2. (Note: Fictional scenario!) Three years ago, McDonald’s acquired KFC as an outright purchase
simply to obtain their chicken recipe. McDonald’s let go of all KFC management and employees,
selling off all KFC locations. McDonald’s rebranded McNuggets as KFC McNuggets and uses the
former KFC recipe in a new line of chicken products. However, chicken sales have lagged
completely, and this occurred even prior to the COVID pandemic, which made sales even worse.
You’ve decided it’s time to refocus your product line, hoping that will improve your bottom line.
Using the Framework for Choosing a Path for Restructuring section in Chapter 6 of your text and
the decision flowchart (Exhibit 6.21), determine the following.
a.
(4 points) What restructuring alternative would be the best approach for McDonald’s to
take considering their declining sales of chicken products? Select only one.
b. (6 points) Explain your reasoning in terms of what relationship the KFC purchase has to
McDonalds’ core business.
c. (6 points) Explain your reasoning in terms of McDonald’s need for control.
d. (6 points) Explain your reasoning in terms of whether or not the KFC purchase can now
operate as a separate entity.
(6 pts) Proper grammar, full sentences, correct spelling and punctuation, and a neat and professional
format with clearly labeled answers are required.
External
Internal
McDonald’s SWOT Analysis
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STRENGTHS
#1 global brand in the fast-food
industry ($19.2B revenues, $4.7B
net income)
$2B advertising budget
Food menus adapted to locality
80% are independent franchises
Markets to children well
OPPORTUNITIES
Increased demand for healthier
food
Home delivery
Changing customer trends and
new customer groups
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WEAKNESSES
Negative publicity
Unhealthy food menu
Low differentiation
High employee turnover
THREATS
Developed world has
saturated food markets
Trend toward healthier foods
Local fast-food chains
Currency fluctuations
Lawsuits
KFC SWOT Analysis
Internal
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External
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STRENGTHS
#2 global brand in the fast-food
industry ($259M revenues, $19M
net income)
Strong position in China
KFC combined with Pizza Hut or
Taco Bell
Market leader for fast-food
chicken
Original herbs and spices recipe
OPPORTUNITIES
Increased demand for healthier
food
Home delivery
Introducing new products
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WEAKNESSES
Negative publicity
Unhealthy food menu
Untrustworthy suppliers
High employee turnover
THREATS
Developed world has
saturated food markets
Trend toward healthier foods
Local fast-food chains
Currency fluctuations
Lawsuits
MCD: 2020 annual data derived from SEC’s EDGAR database of company filings:
https://www.sec.gov/ix?doc=/Archives/edgar/data/63908/000006390821000013/mcd20201231.htm#ie6432d332c1e474ebcfd7a8ae92953e8_49
KFC: Income Statement shown in Japanese Yen (JPY). Results were converted to US Dollars using the conversion
rate effective on Sep 23, 5:23 PM UTC: 1 JPY = 0.0091 USD: https://www.investing.com/equities/kfc-ltd-incomestatement
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