What would be the impact on the profitability of the company in the case below if it was purchased by McDonald's?
Medeiros Burgers and Arepas is a local 2-unit quick service restaurant. The owner, Phoebe Medeiros, bought the business from her mother using a $5 million bank loan. ¬†Despite enjoying a long list of customers and rave reviews about its best burgers and arepas, the business is struggling to pay its interest expense.¬†Last week, Phoebe received an offer letter to sell to McDonald's, a large publicly traded corporation. ¬†The offer letter highlighted several reasons for an acquisition, but the most prominent was its weighted cost of cost of debt.
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A. Decreased profitability B. Increased profitability C. No change to profitability
The answer to this is B. The company is going to experience an increased profitability. McDonald’s is known to be a huge company. The things that it will promote have a higher chance of getting recognized and being appreciated by people simply because they are already famous. They are trusted by people more and consumers would most likely try the new products that they will introduce.
Selling to McDonald’s means that the company will gain enough money to pay of its debt and get a one-time profit when they receive the payment from McDonald’s. There are a lot of small companies who wish that this would happen to them in real life.