comment on the appropriateness of Wrigley’s debt level in the event of the proposed bond issue and make recommendations as to whether or not the firm should in fact follow through with the issue. The items of interest that will be analyzed include: the impact on share price, cost of capital, earnings per share, agency cost of debt, voting control, signaling & clientele effect and debt coverage & financial flexibility. Analysis Impact on stock price and WACC The leverage does not affect firm
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dividend or to repurchase shares on: a. Wrigley’s outstanding shares? b. Wrigley’s book value of equity? c. The price per share of Wrigley stock? d. Earnings per share? e. Debt interest coverage ratios and financial flexibility? f. Voting control by the Wrigley family? 3. What is Wrigley’s current (pre-re-capitalization) weighted-average cost of capital (WACC)? 4. What would you expect to happen to Wrigley’s WACC if it issued $3 billion in debt and used
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Wrigley’s WACC before recapitalization is 10.9%. Since the WACC is same as cost of equity. After raising $3 billion debt for pay dividend or share repurchase, it would change the Wrigley’s capital structure. The recapitalized WACC is 10.91%, which does not change. In general, the WACC would decrease after raise up large debt and the firm value would increase. In Wrigley’s case, the re-leveraged beta increased from 0.78 to 0.85 and debt ratios increased from 0 to 20.9%, which make the firm value stay
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dividend or to repurchase shares on: a. Wrigley’s outstanding shares? b. Wrigley’s book value of equity? c. The price per share of Wrigley stock? d. Earnings per share? e. Debt interest coverage ratios and financial flexibility? f. Voting control by the Wrigley family? 3. What is Wrigley’s current (pre-re-capitalization) weighted-average cost of capital (WACC)? 4. What would you expect to happen to Wrigley’s WACC if it issued $3 billion in debt and used
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the right path for Wrigley. The following analysis will evaluate the assumptions made by Ms. Dobrynin and her associate, examine Wrigley’s financial position under each alternative option, and provide suggested recommendations for Ms. Chandler to present to Wrigley’s board of directors. Key Issues Debt Rating: Ms. Chandler’s estimations regarding Wrigley’s credit rating may not be entirely accurate; therefore, the debt rating in which Wrigley should be categorized may not be BB/B. Each of the factors in
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Jr. Company in Delaware as a partnership in 1891; it then became a corporation in 1903 based out of Illinois. The Wrigley’s company has been family ran up until recently when William D. Perez became president, CEO, and director. As of today, William Wrigley Jr. Co. corporate headquarters is located in Chicago, Illinois. Wrigley’s original two brands were Juicy Fruit and Wrigley’s Spearmint. These two brands are now a subsidy of the Mars Incorporated. Wrigley has since expanded, and it now owns
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rating for Wrigley, after they assume the debt would they be able to manage the interest payments. How does Chandler know that a rating of BB/B would be likely. Additionally, Chandler knew that the maximum value of the firm would be achieved when the WACC was minimized. Repurchasing of shares would alter the amount of shares outstanding which could also have an impact on the amount of the Wrigley family’s voting control. Chandler needed to ensure that her analysis covered all aspects of the restructuring
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because there would be less shares outstanding after the buyback. The market would look favorable upon that, thus increasing the share price. If Wrigley is able to borrow at a lower rate this will affect the WACC. Meaning, they obtain debt at a good credit ratings, which affects the tax shield as the WACC is lower. In actuality the firm increase in value by the benefit of the tax shield. (Brigham, 2014) If the hedge fund is able to convince the Wrigley Jr company to use debt to either pay dividends
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HERSHEY FOODS CORPORATION: BITTER TIMES IN A SWEET PLACE Teaching Note Synopsis and Objectives The proposed sale of Hershey Foods Corporation (HFC) during the summer of 2002 captured headlines and imaginations. After all, Hershey was an American icon, and when the company’s largest shareholder, the Hershey Trust Company (HSY), asked HFC management to explore a sale, the story drew national and international attention. The company’s unusual governance structure put the Hershey Trust’s
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Tootsie Roll Vs Hershey The purpose of this financial analysis is to compare Tootsie Roll and Hershey Inc to the industry average financial ratios to determine which company will be the best investment opportunity. This analysis will evaluate and compare the company’s liquidity, solvency and profitability ratios from 2004. Tootsie Roll, Inc. and Hershey Inc are both companies well known for the selling of confectionary goods. Hershey is publicly traded under NYSE: HSY, Tootsie Roll under
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