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Wm. Wrigley Jr, Company Capital Structure

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Wm. Wrigley Jr, Company Capital Structure
Wm. Wrigley Jr, Company Capital Structure
Wm. Wrigley Jr, Company Capital Structure

8/23/2013

8/23/2013
EFB340 Finance Capstone
Case Study 1

Group S3
Dat Bui (N8360928)
JeongHwan KWON (N8400822)
Honghu Ye (N8106258)
EFB340 Finance Capstone
Case Study 1

Group S3
Dat Bui (N8360928)
JeongHwan KWON (N8400822)
Honghu Ye (N8106258)

Table of Contents Abstract1
1.0 Introduction2
2.0 Analysis
Share price2
Weighted Average Cost of Capital2
Earnings per Share 3
Voting Control 3
EBIT Interest Coverage Ratio 4
Flexibility 4
3.0 Recommendation5
4.0 Reference List7
5.0 Appendix
Appendix 18
Appendix 29
Appendix 310
Appendix 412
Appendix 513
Appendix 614
Appendix 715
Appendix 816
Appendix 917
Appendix 1017

Abstract
This report examines the impacts of recapitalization of Wm. Wrigley Jr, Company which is unleveraged firm in 2002. This recapitalization with $3 billion debts increases the firm’s value and share price. On the other hand, it could be a risky strategy for Wrigley; therefore, based on our WACC analysis, the report indicates that it would be appropriate stretegy to have $2 billion debts instead of $3 billion. This examination also states that the firm needs to repurchase its share by the debts rather than pay dividend.

1. Introduction

The Wm. Wrigley Jr, Company is considering a leveraged recapitalization by raising $3 billion. It will be concerned due to the fact that the amount of debt could be account for its firm excessively comparing to its capital which is $13 billion. The debt will impact on and bring changes in the firm’s value and share price.
The report will analyse and focus on the effects on the Share Prices, Earning Per Share (EPS), Weighted Average Cost of Capital (WACC) and other issues based on Modigliani and Miller (M&M) and Trade off theories. Based on the analysis, the report will justify a suitable debt level for Wrigley and provide strategies for them.


References: Achim, M., Achim, S., & Borlea, S., PhD. (2009). The use of earning per share in the analysis of a company 's market value. Journal of American Academy of Business, Cambridge, 14(2), 344-349 Chandra, P. (2008) Investment Analysis (3rd Edition). India: Tata McGraw-Hill Education. Fosberg, R. H. (2010). A test of the M&M capital structure theories. Journal of Business & Economics Research, 8(4), 23-28. Retrieved from http://search.proquest.com/docview/194911822?accountid=13380 Kincheloe, S Murali, J. Clifford P, S. & Michael S, W. (2000). Jounal of of Financial Economics. Financial flexibility and the choice between dividends and stock repurchases http://dx.doi.org.ezp01.library.qut.edu.au/10.1016/S0304-405X(00)00061-1, Soter, D. (1996). Of dividends and financial flexibility. Chief Executive, (116), 18. Retrieved from http://search.proquest.com/docview/212066584?accountid=13380 5 EBIT (2002) = $527,366,000 x 1.09 = $574,828,940
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