Challenge Problem: Chapter 10 BUSFIN1030 Due: November 20, 2020 In the fast-food and fast-casual restaurant industry, breakfast serves as a high-margin, low-effort contributor to total earnings. For fast food giant McDonalds Corporation(ticker: MCD), the inclusion of the all-day breakfast menu boosted sales and accounted for 1/3 of all pre-pandemic sales (Marketplace). To reduce the reliance on external delivery services, you are evaluating a proposal that McDonald's establish its own delivery service with specially outfitted vehicles. To ensure a consistent product and customer experience, these vehicles would be equipped to handle items whose quality deteriorates over time. As of 11/5/2020, McDonald's total capital has a market value of $406,760,386,000 and 88.31% is common stock equity. McDonald's has an equity beta of 0.58 and a cost of debt of 3.2%. McDonalds does not have any preferred stock outstanding. The annual expected return on the market is 11.8% and the 5-year Treasury note has a yield of 0.40%. The proposed project will generate the following cash flows: Time CF in $M) -240.00 105.68 84.09 77.39 66.19 43.60 0 1 2 3 4 5 For challenge problems, answers must be in your own handwriting and you must show all math- ematical calculations. Questions: 1. What is the dollar amount of debt, preferred stock, and common stock held by the firm? 2. Assuming a corporate tax rate of 21%, what is MCD's weighted average cost of capital (WACC)? 3. Calculate each of the following and indicate whether the project is acceptable: (a) Calculate the payback period (assume a maximum allowable payback period of 3 years) (b) Calculate the discounted payback period (assume a maximum allowable payback period of 3 years) c) Calculate the net present value (NPV) (d) Calculate the profitability index (PI) (e) Calculate the project economic value added (EVA) (assume straight-line depreciation for the initial investment capital) (f) Calculate the internal rate of return (IRR) 4. Based on your analysis, what is your overall recommendation