The Wm. Wrigley, Jr. Company; Capital Structure, Valuation, and Cost of Capital with $3billion Debt for Dividend Payout or Share Repurchase
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- Date Submitted: 04/21/2015 05:17 AM
- Pages: 27
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The Wm. Wrigley, Jr. Company; Capital Structure, Valuation, and Cost of Capital with $3billion Debt for Dividend Payout or Share Repurchase
EXECUTIVE SUMMARY
This report examined the financial effects on Wrigley’s $3billion debt, the debt will impact on and bring changes in the firm’s value and share price. It explores two alternate means of allocation for the funds; pay out dividend or carry out a share repurchase. Both methods ware evaluated in regards to an optimal capital structure and maximizing shareholder value. A compilation of historical data and future predictions were used for the basis of this report, and recommendations,
The report and analyses focus on the effects on the Share Prices, Earning per Share (EPS), Weighted Average Cost of Capital (WACC), Voting right, Signaling and clientele, and other issues based on Modigliani and Miller (M&M), Capital Asset Pricing (CAPM), and Trade off theory. Based on the analysis, the report will justify a suitable debt level for Wrigley and provide strategic recommendations.
The 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 my WACC analysis, the report indicates that it would be appropriate strategy to have $2 billion debts instead of $3 billion due to its low cost of capital and high returns following a better financial flexibility. This examination also states that the firm needs to repurchase its share by the debts rather than pay dividend.
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TABLE OF CONTENT
1.0 INTRODUCTION………………………………………………………………………….5
1.1 VOTING CONTROL………………………………………………………………….…...4
1.2 SIGNALLING AND CLIENTELE EFFECT………………………………………….…..8
1.3 DEBT RATING AFTER RE-CAPITALIZATION…………………………. ………...….9
1.4 FINANCIAL FLEXIBILITY……………………………………………………….………10
2.0 EARNINGS PER SHARE (EPS)……………………………………………….……….11
2.1 EARNINGS PER SHARE ANALYSIS…………………………………………………11
2.1.1 AFTER...
EXECUTIVE SUMMARY
This report examined the financial effects on Wrigley’s $3billion debt, the debt will impact on and bring changes in the firm’s value and share price. It explores two alternate means of allocation for the funds; pay out dividend or carry out a share repurchase. Both methods ware evaluated in regards to an optimal capital structure and maximizing shareholder value. A compilation of historical data and future predictions were used for the basis of this report, and recommendations,
The report and analyses focus on the effects on the Share Prices, Earning per Share (EPS), Weighted Average Cost of Capital (WACC), Voting right, Signaling and clientele, and other issues based on Modigliani and Miller (M&M), Capital Asset Pricing (CAPM), and Trade off theory. Based on the analysis, the report will justify a suitable debt level for Wrigley and provide strategic recommendations.
The 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 my WACC analysis, the report indicates that it would be appropriate strategy to have $2 billion debts instead of $3 billion due to its low cost of capital and high returns following a better financial flexibility. This examination also states that the firm needs to repurchase its share by the debts rather than pay dividend.
.
TABLE OF CONTENT
1.0 INTRODUCTION………………………………………………………………………….5
1.1 VOTING CONTROL………………………………………………………………….…...4
1.2 SIGNALLING AND CLIENTELE EFFECT………………………………………….…..8
1.3 DEBT RATING AFTER RE-CAPITALIZATION…………………………. ………...….9
1.4 FINANCIAL FLEXIBILITY……………………………………………………….………10
2.0 EARNINGS PER SHARE (EPS)……………………………………………….……….11
2.1 EARNINGS PER SHARE ANALYSIS…………………………………………………11
2.1.1 AFTER...