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This spreadsheet supports STUDENT analysis of the case, "The Wm. Wrigley Jr. Company" (Case 30). Copyright 2005 by the University of...

Question #1:

Looking at the data provided to you in the case, without doing a detailed analysis, do you agree with Blanka Dobrynin’s view that Wrigley is not efficiently financed? Why? Discuss clearly the methods you will use to help you to arrive at your decision.

Question #2:

What could possibly be the benefits of having more debt for Wrigley? You must refer to the literature to support your answer.

Question #3:

What could possibly be the costs of having more debt for Wrigley? You must refer to the literature to support your answer.

Question #4: :

What would you expect to happen to Wrigley’s WACC if it issued $3 billion in debt and used the proceeds to pay a dividend or repurchases? You must refer to the literature to support your answer.
Copyright © 2005 by the University of Virginia Darden School Foundation. This spreadsheet supports STUDENT analysis of the case, "The Wm. Wrigley Jr. Company" (Case 30).
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Effects of Recapitalization To test the valuation effects of the repurchase, assume that Wrigley could borrow a maximum of $3 billlion at a pretax cost of debt of 13 percent and that the aggregate amount of debt will remain constant in perpetuity. Also assume that the proceeds of the loan would be used to repurchase shares or be paid as an extraordinary dividend to shareholders. Exhibit 1 presents Wrigley's book- and market-value balance sheets assuming the capital structure before recapitalization. Wm. Wrigley Jr. Company, Inc. (values are in thousands) Before Step One: Alternatives for Step Two: Recapitalization Changes Releveraging Dividend Share Repurchase Book Value Balance Sheets 1 Net working capital $581,609 2 Fixed assets, marketable securities, deferred tax assets $851,795 3 Total assets $1,433,404 4 Long-term debt $0 5 Deferred taxes, other noncurrent liabilities $157,127 6 Common equity $1,276,287 7 Total capital $1,433,414 8 Book value per share $5.49 9 Book value of equity divided by total capital 89% Market Value Balance Sheets 10 Net working capital $581,609 11 Fixed assets $12,678,217 12 PV debt tax shield (equals 0.40 times debt balance) $0 13 Total assets $13,259,826 14 Long-term debt $0 15 Deferred taxes, other noncurrent liabilities $157,127 16 Common equity $13,102,699 17 Total capital $13,259,826 18 Number of shares 232,441 19 Price per share $56.37 20 Market value of equity divided by total capital 99% Value to Public Shareholders 21 Cash received $0 22 Value of shares $13,102,699 23 Total $13,102,699 24 Total per share $56.37 25 Percentage change in value
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