CASE STUDY 1: The Wm. Wrigley Jr. Company capital structure‚ valuation‚ and cost of capital [10 MARKS OUT OF 100 MARKS TOTAL] Semester 1‚ 2013 Background: The term capital structure refers to the way a corporation finances its assets through some combination of equity and debt. Each form has its own benefits and drawbacks and firm managers attempt to find the perfect capital structure in terms of risk / reward payoff for shareholders. See these podcasts:
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of the Business 3 Stages of Development 3 Core problem 4 analysis and options 4 Risk analysis 5 First: The Business Risk 5 Second: The Financial Risk 6 Other kinds of risk: 7 Financial Analysis 7 The WAAC 7 Ratio Analysis 11 Recommendations: 12 References: 12 Introduction Background In 1981‚ AHP had reached sales of more than $4 billion by producing 1‚500 marketed brands in 4 different kind of business; prescription drugs‚ packaged drugs‚ food products‚ and housewares and
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Diageo Case 1. How has Diageo historically managed its capital structure? Diageo sought to maintain the low-debt (conservative) financial policies of the Guinness and Grand Met with goals to keep * its interest coverage ratio (EBITDA / Interest Payments) between 5 and 8 and * its EBITDA / Total Debt around 30-35% Although not quite as conservative as other UK firms (with Equity/Assets ratios of 42%)‚ it was successful in achieving these goals and retaining a credit rating of A+ (a
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Polaroid Corporation‚ 1996 In late March 1996‚ Ralph Norwood was faced with the task of restructuring Polaroid’s capital structure. In the past‚ Polaroid had a monopoly in the instant-photography segment. However‚ with upcoming threats in the emerging digital photography industry and Polaroid experiencing recent losses in their market share due to Kodak’s competition‚ Gary T. DiCamillo‚ recently appointed CEO of Polaroid‚ headed a restructuring plan to stimulate the firm’s performance. The firm’s
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was avoided. However‚ the company’s cash position and conservative capital structure has a negative impact on its financial performance measure‚ which is indicated by a lower ROE and ROA rate. Also compared with other U.S companies in the industry‚ the zero-debt-capital structure is unusual. Therefore‚ Hill Country start to consider is it the time to change its capital structure‚ and if so‚ what is its optimal capital structure. Current operating strategy VS business risks and financial strategy:
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given for creativity and analysis beyond the minimum requirement. If you have any questions‚ please e-mail them to your instructor. (1) EXECUTIVE SUMMARY: Provide a one (1) page executive summary which summarizes your findings and provides a recommendation whether to buy or not to buy the stock and the debt securities of the company (two separate decisions). (2) COMPANY INTRODUCTION: Provide a one page (1) introduction to your company including: company history‚ strategy‚ main products &
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analysis of the proposal for the construction of a new 180‚000 DWT vessel has brought us to the conclusion that the project should not be undertaken. Our recommendation and decision is based on a discounted cash flow analysis of expected future cash flows from the vessel that produced a net loss for the project of $7‚201‚639. Included in this recommendation are a number of important assumptions‚ each of which is described in detail below‚ that we believe are neither conservative nor aggressive in nature
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Notes to Consolidated Financial Statements (continued) complaints‚ which assert varying claims‚ including breach of contract‚ and violations of ERISA‚ state and federal law‚ all allege that the prices BNY Mellon charged and reported for standing instruction foreign exchange transactions executed in connection with custody services provided by BNY Mellon were improper. In addition‚ BNY Mellon has been named as a nominal defendant in several derivative lawsuits filed on various dates in 2011 and 2012
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risk adjustment in the capital budgeting allocation process by answering the following questions. a. Explain why risk adjustments are important and how they can affect firm value. Without the correct risk adjustment the firms stock will lose value by taking on high risk projects. The firm could also be considered uncompetitive if they reject low cost/low risk projects. b. Explain how the single hurdle rate currently used by Northern Forest Products can change the risk structure of the company. For
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critical you consider the tax‚ risk‚ and revenue implications of the three proposed capital structures. Financial Analysis – See appendix for detailed methodology and calculations | Capital Structure | Discount Rate | Net Present Value | Flow to Equity Approach | All Equity | R0 15.8% | $1‚228‚485 | Adjusted Present Value Approach | $750k Debt in Perpetuity | Rs 15.8% | $1‚528‚485 | Weighted Average Cost of Capital Approach | Debt/Market Value of .25 | RWACC 15.1% | $1‚469‚972 | | 2002E
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