Running Head: THE WM. WRIGLEY JR.COMPANY CASE STUDY THE WM. WRIGLEY JR.COMPANY: CAPITAL STRUCTURE‚ VALUATION AND COST OF CAPITAL Situation Aurora Borealis LLC is a hedge fund that has around $ 3 billion under management and they
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“American Home Product” has never appeared on its products‚ the firm produces many well-known brands in the market‚ such as Anacin‚ Woolite and Chef Boyardee. Starting from the 1960’s‚ the firm caught a lot of attention with its almost debt-free capital structure. Its chief executive‚ William F. Laporte‚ enforced on top-down management system and strict financial policy. His managerial philosophy included the following 4 components: 1. Reticence According to a poll done by Wall Street‚ AHP was
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b. 11% × (1 – 0.20) = 8.8%. c. 11% × (1 – 0.40) = 6.6%. Problem 3 The corporate cost of capital is the weighted average (blend) of the component costs: Corporate cost of capital = [wd × R(Rd) × (1 – T)] + [we × R(Re)] = [0.35 × 7.0% × (1 – 0.00)] + [0.65 × 13.5%] = 2.45% + 8.775% = 11.2%. Problem 4 Richmond’s optimal capital structure is 40 percent debt‚ because its corporate cost of capital is the lowest at that level.
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Professor name: Eliot H. Sherman Nike Cost of Capital Case Assignment 1. Calculate Nike’s Cost of Capital based on the book values presented in the case. 2. Calculate Nike’s Cost of Capital based on the Market Values presented in the case. 3. Evaluate Joanna’s calculation and identify and explain any differences between her calculation and yours. 4. Under what circumstances is using book values the most appropriate basis for calculating the cost of capital? (Your answer should not be focused on
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Formula Sheet for the Corporate Finance Final Examination Paper 1. r = cost of capital t = year 2. Pure Play approach bL = bU[1 + (1 – T)(D/E)] bL = levered beta bU = unlevered beta T = tax rate D/E = debt to equity ratio 3. Firm value Rs = Cost of equity G = cash flow growth rate 4. rRF = the risk-free interest rate RPM = the expected market risk premium on an average stock = rM – rRF rM = the expected return on the market portfolio
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institutions. The product range being offered is most in line with the products offered by Carlton Polish. Another comparison is the compounded growth rate of sales: EL has a growth rate of 13% and Carlton of 14.59%. To further add on that‚ the working capital turnover rates are quite similar. Nonetheless of some small differences‚ EL would be a good comparable. (See appendix‚ exhibit 1.1 and 1.2) Crompton & Knowles (CK) has a broader product range than Carlton. Next to that the company also manufactures
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his current situation at another employer – Current responsibilities include • Shareholder reporting: one individual • Capital budgeting: major capital expenditure program just completed – Harrington facilities the most modern in the industry‚ excellently maintained • Financial forecasting and planning: level production; 98% re-order rate for product • Working capital management: pay cash for all orders when due • Debt issuance: two unutilized $1M lines of credit • Equity issuance and
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on the part of Polaroid to avoid the immediate dangers they face. Specifically: 1. The company must stop repurchasing their sales as a defence against potential hostile takeover moves by predators. 2. A mixed structure should be adopted as for capital restructuring adjusted to the scenarios of decreasing profitability and increasing profitability. In the former‚ the restructuring proposal involves a 60% to 40% proportion of new debt/ new shares issued. The existing debt of the company will be rearranged
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price of $ 20.4 per barrel to $ 44.3 per barrel. This increasing value of per barrel can significantly increase the valuation of the oil fields. COSTS: The costs in the projections were estimated based on the historical costs and cash overhead savings that Amoco expected to save from the sale of MW petroleum. However‚ Apache had very low costs and was an efficient operator of properties. Also‚ since the MW fields were operated by Amoco; this would result in more potential savings to Apache
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manufacturing company and had established a reputation for identifying new consumer trends. Tesca Works Inc. is a California-based generator manufacturing company. The company is well known for manufacturing large‚ heavy-duty generators at a reasonable cost. One of its greatest achievements is that its generators can be easily modified or customized for different applications. Also‚ Tesca Works currently builds commercial appliances. The company is considering an expansion of its current product
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