MANAGERIAL ECONOMICS PROJECT

The objective of this project is to evaluate your capabilities as a microeconomist and business owner. In this position, you must analyze the attractiveness of a McDonalds franchise and develop strategies to enhance the profitability and reduce risk. Start with the income statement that was provided, (McD IncSt), and make changes as specified below. Base your analysis on your results and recommendations.

Update the 2012 income statement as follows.
- Adjust for inflation. Note: The adjustment for inflation for salaried and manager payroll should be based on minimum wage and salary indicies. Food should be adjusted based on a food index. You must demonstrate in your report how you made the adjustments and also the source of your appropriate index. Adjust all other components as necessary.
- An assumption was made that the average meal was $8.00. An easy way to increase profitability is to increase the cost of a meal. However, changes in price lead to changes in quantity demanded. In addition, changes in demand are also affected by changes in income. The first change is a function of the Price Elasticity of Demand. The second change is a function of the Income Elasticity. If you plan to change the Price per meal above your inflated rate, you must demonstrate a decline in the quantity of meals, (Q). You will have to research these elasticities and demonstrate the changes to quantity and price that you make.
- Reconstruct the income statement and calculate the anticipated 2020 bottom line, break even quantity and contribution.
Analyze the risk as follows. Assume:
- A Coronavirus pandemic sweeps the area of your franchise. You lose 40% of your top line. This will impact your variable costs, but initially, not your fixed costs. Demonstrate the damage to your business by revising the income statement with the reduced Q and reduced variable costs. Then develop strategies to counter the loss of business. You may want to reduce staff, cut wages, cut utilities, appeal for a rent cut, etc. Be careful! If you adjust price, (I cannot imagine that you would increase the price to make up for lost top line), demonstrate the other expected changes. Incorporate your strategies into a proforma income statement. Please do not present extreme strategies. (Ex. Replacing everybody with a robot, etc.)
Summarization of required reports and spreadsheets.
- 2012 income statement. Demonstrate Break Even Quantity.
- Income statement adjusted for inflation to 2020. Show all adjustments and explain. Calculate Q_BEand Contribution.
- Income statement demonstrating loss of 40% of your top line. Show all adjustments and explain. Calculate Q_BEand Contribution.
- Submission of the appropriate forms from the Small Business Association for the Payroll Protection Plan, (CARES Act, 2020). Demonstrate how you arrived at your loan amount on a separate sheet. (For the accountants, provide a separate explanation of the impact of this forgivable loan on a cash flow statement).
- Income statement demonstrating your strategies. Show all proposals, sources of assumptions. I am relatively certain that even with your creative strategies, your bottom line will still be negative. Calculate Q_BEand contribution.
Paper
- Explain what you did above in your paper.
Presentation
- Powerpoint presentation.
  - Slide 1 Introduction
  - Slide 2 2012 Inc. St. Show Q_BE, and Contribution
  - Slide 3 Income Statement with inflation adjustments. Separate Var and Fixed columns. Show Q_BEand Contribution
  - Slide 4 Same as above after 40% loss of volume.
  - Slide 5 Loan submission.
  - Slide 6 Income Statement with your strategies.
  - Slide 7 Summary of above:
    - On one slide:
      - Bottom Line, Q_BE, and Contribution from 2012 Inc statement
      - Same as above after inflation
      - Same as above after coronavirus
      - Same as above after you employ your strategies
    - Slide 8 Cash Flow Statement. (For Accountants)

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