MCD LOW = 11.927 +.221SPX R-sq =16.

92%
16.44

The first regression we ran was between the S&P 500 PE and the annual high PE of

MCD. We were surprised to find the highest correlation between these two PE at .705,

and R-sq of 49.66%. Based on this regression we estimated MCD’s high PE at 24.02.

Despite the strong correlation we believe that this estimate of the High annual PE for

MCD expresses the company’s previous condition when it aggressively expanded abroad

therefore we believe that MCD’s high PE will be closer to the Industry average of 21.05.

The second regression was between the S&P 500 PE and the annual low PE of MCD.

Based on this regression we got a relatively low correlation of .411, R-sq of only 16.92%,

and an expected PE of 16.43. We believe that the annual low is again somewhat above

our expectations and we estimate the company’s low PE given the current conditions at

15.

The third correlation used the average of MCD’s high and low annual PE and the annual

PE of the S&P 500. Based on this regression the correlation was relatively strong at 0.64,

R-Sq of 40.66%, and an expected PE of 20.24.

3. The final regression we ran, which in our opinion is the most appropriate one used the

annual S&P 500 PE for the last year and compared it to the discount or premium of the

MCD PE for the same years. For this regression we got the highest correlation of .855.

The R-sq was about 73% which is also high. We calculated that MCD’s PE for 2005 will

37