The wm wrigley jr company capital structure valuation and cost of capital case analysis

The wm wrigley jr company capital structure valuation and cost of capital case analysis

Bruner and Sean D. All rights reserved. The effects of the financial ratios will be different wether if the firm choose to pay out a dividend or repurchase shares. Aurora borealis an activist investor company saw this as an opportunity. She gathered financial data on Wrigley and its peer companies Exhibit 5. While the theory and reasoning sound the level of debt purposed by the CEO, would leave the company so heavily leveraged as to actually destroy value in the long run, and concentrate ownership to making their job more difficult. Hedge Fund Strategy The buyback of shares would increase the EPS for the firm as a natural consequence of reduction in number of shares outstanding. For risk free rate, we used the year U. Earnings per Share 3 e.

The tasks for the student are to: Estimate the potential change in value from relevering Wrigley using adjusted present value analysis Wrigley Jr. Thus, the present value of debt tax shields could be added to the value of the unlevered firm to yield the value of the levered enterprise.

Hence although re-levering shows no effect on value of the firm, the EPS rises and the stock price rises due to the repurchase.

Company is the biggest chewing gum manufacturer in the world and it is currently an unlevered firm. Intra-group discussions will be facilitated in the second part of the tutorial. Estimate the potential change in value from re-levering Wrigley using adjusted present value analysis;? The raised debt, because of the debt tax shield under good credit ratings, would reduce WACC and hence increase value of the firm. Company is a mature firm that currently has no debt. WM is not suggested to use this debt for share-repurchase which concentrates ownership and sends a negative signal in the market. They identified a mature company that currently holds no debt at all, the William Wrigley Jr. She gathered financial data on Wrigley and its peer companies Exhibit 5. The tasks for the student are to: Estimate the potential change in value from relevering Wrigley using adjusted present value analysis Wrigley Jr. Posted by. In that regard, Chandler gathered information on the average financial ratios associated with different debt-rating categories Exhibit 6. They would look to previously unleveraged companies as possible value generators, they found WM.

The reduction in dividends in future may disappoint many of the stakeholders and the stock price may drop significantly after an announcement or in anticipation of any such announcements.

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wrigley case study conclusion

Had about 1, employees. It has a leading market share in a stable low-technology business—it makes chewing gum—and yet has no debt.

Capital structure project the wm wrigley jr company outlines 10pts * 6 60 pts

Students who do not belong to any group will be assigned to a group in this tutorial. Wrigley had been conservatively financed and at the date of the case, carried no debt. These signal that for the activist investor this would be a bad investment and should not be attempted. Likewise, the increasing amount of debt can increase the cost of capital at higher levels Chart 2. We will then provide a conclusion and insights based on the analysis. Consolidated Balance Sheets for the Wm. The debt interest coverage would decrease to 1. An investment will affect the firm on several different ways. Hedge Fund Strategy The buyback of shares would increase the EPS for the firm as a natural consequence of reduction in number of shares outstanding. Wrigley Jr.

A company with a higher EPS is more attractive to investors, and thus it results in a high stock price.

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The Wm. Wrigley Jr. Company Case Study Essay