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Naomi Stanford The look on Subway Finance and Investment Co. Subway Franchising The company I chose is Subway. I chose this because majority of my clients own subway franchises and I think it is a good company to determine the WACC and the return on equity. I a lot of my clients repeatedly open new subway locations and I ask myself, is the return on the franchise investment worth it? When I receive the accounting work for my subway locations from my client, I notice that the expenses that they pay out every month is the same across the board. I also notice the amount of cash that they acquire throughout the month to cover the expenses. It’s not a lot but apparently it is covering the expenses and also it is covering their home…show more content…
The WACC is the overall required return for a firm. Company directors will often use the WACC internally in order to make decisions, like determining the economic feasibility of mergers and other expansionary opportunities. Now, for Subway, Fred Deluca and Peter Buck had to decide in 1974 what they needed to do because they were approaching their deadline of acquiring 35 stores in a ten-year frame. Let’s assume that they took the formula of WACC to determine if they should franchise to meet their goal of go to the bank and get a loan to open up the stores within a year span. Breaking down Subway Finance and Investment Co Weighted Average Cost of Capital Formula Investing in buying a Subway franchise, you will need a certain amount to start with. This is called the startup amount that you will need. Some franchisors will buy an existing location or some franchisors will buy the land and build. The amount that you will need to invest in purchasing a Subway franchise can range from $80,000 to $275,000. Subway is a publicly traded company. Subway is known as Subway Finance and Investment Company on the stock market. According to their balance sheet, Subway Finance and Investment Company has low debt and low assets. 1. First find the equity= (#of shares * price per share) Note: price per share as of today, December 4, 2015 100 shares*$6.30 E=$630 2. Calculate the market value of company’s
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