From the course: Financial Accounting Part 2

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McDonald's: Lessons from a comparison of the models

McDonald's: Lessons from a comparison of the models

From the course: Financial Accounting Part 2

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McDonald's: Lessons from a comparison of the models

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- The computed prices for McDonald's shares at the end of 2011 using each of these four models are as follows. The estimated price using model 1 which is constant future dividends, $16.87. For model 2, the constant dividend growth model, $70.21. For model 3a, the average price earnings multiple, $105.93. And model 3b using the PE ratio for the closest competitor, that's Yum! Brands, $113.31. And finally, the grand champion model 4, the discounted free cash flow analysis, $35.29. All right, are you ready? The actual market price of a share of McDonald's stock at the end of 2011 was $98.86. Alright, now this valuation exercise should leave you feeling dissatisfied for two reasons. First, our estimates are all over the map ranging from $16.87 per share to $113.31 per share. Second, except for the price earnings multiple model our estimated values are not even close to the actual $98.86 value of McDonald's shares at the end…

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