The Wm. Wrigley Jr. Company: capital structure‚ VALUATION and cost of capital Introduction: Blanka Doborynin a managing partner of AURORA BOREALIS LLC tries to initiate a research for a potential investment in Wrigleys. They are trying to recapitalize the firm. Wrigley’s which is 100% equity financed has a market value of $13‚103‚000‚000 the question begins if it is totally equity financed is it running at its efficient level? Or Is it better to recapitalize the structure and thereby bring
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CAPITAL STRUCTURE‚ VALUATION‚ AND COST OF CAPITAL Executive Summary Aurora Borealis LLC is an activist Hedge fund. They are trying to buy a large stake in the company and thereby force the management to reorganize the capital structure by raising the debt and using it to pay the dividends or buy back the shares. The effect of restructuring on various financial parameters will be discussed in the concluding parts. Hedge Fund Strategy The buyback of shares would increase the EPS for the firm
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Modigliani and Miller (1958) theorem has been widely touted as the basis for capital structure theory (M&M Propositions). While previously rationalizing that a firm should be indifferent between various levels of financial leveraging – a further study ‘optimal’ level of capital structure which enhances the use of a tax shield to best offset the cost of debt. It is important to note however‚ that there are several implicit considerations & limitations that are imposed with the increase of leverage
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The William Wrigley Jr. Company Case Report Ying Suan Lo Julianne Mills Nick Lim Vinson Chen Glen Hamilton Table of Contents 1.0 1.0 Introduction Identifying opportunities for corporate financial restructuring was typical for Blanka Dobrynin‚ a managing partner of the hedge fund Aurora Borealis LLC. In 2002‚ with the then debt free William Wrigley Jr. Company (Wrigley) in her sights‚ she asked her associate Susan Chandler to conduct
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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
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The Wm. Wrigley Jr. Company. Blanka suggests Wrigley raise the amount of $3 billion in debt of the capitalization while Wrigley has been conservatively financed and remained no debt at the end of 2001. This report is aiming to analyze whether Wrigley should use $3 billion debt recapitalization to either pay dividends or to repurchase shares. 2.0 Current Capital Structure Generally‚ firms can choose among various capital structures in order to maximize overall market value of the company. It
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The University of Hong Kong Case Study on WM Wrigley JR.Company. Individual Written Assignment Table of Contents Executive Summary 1 Introduction 2 Analysis of the Issues 2 Porter’s Five Forces Analysis 2 Current Rivalry (yellow zone) 2 Substitute (yellow zone) 3 New Market Entrants (green zone) 3 Supplier (green zone) 4 Customer (red zone) 4 Major Issues 5 Analysis of Options 5 Positioning at medium to high end in sugar confectionery 5 Developing new concepts in sugar
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EFB340- FINANCE CAPSTONE Case Study 1- The William Wrigley Jr. Company: Capital Structure‚ Valuation‚ and Cost of Capital Group: 4-4 ABSTRACT This report examines the impact a $3 billion bond issue will have on the value of the William Wrigley Jr. Company. When analysing its various impacts‚ the expectations that arise as a result of the leveraged recapitalisation include an increase in the share price & cost of capital and reduced earnings per share. In essence‚ the potential benefits
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Introduction The William Wrigley Jr. Company is the largest manufacturer and distributor of chewing gum‚ with a well consolidated market position. Due to new products and foreign expansion‚ its previous revenues have grown at an annual rate of 10% and its stock price regularly outperforms the S&P 500 as well the industry index. It is a conservatively financed firm with total assets of $1.76 billion and zero debt as of 2001. The purpose of this case study revolves around how should they use a $3
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and the wacc might be if wrigley pursued this capital structure change. The projected cost of debt would depend on her assessement of wrigley’s debt rating after recapitalization and on current capital market rates. WACC before recapitalization Wrigley’s pre recapitalization WACC is 10.9%‚ the cost of equity assumes a risk free rate of 5.65% for 20 years US treasuries in the case exhibit 7; a risk premium is assumed 7% (or 5%)‚ and uses Wrigley’s current beta of 0.75 (case Exhibit 5). 4. WACC
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