Finance and Company Essay

So Wrigley has to make decisions on whether or non to borrow $ 3 cardinal for re bullyization. Question base on the above situation, there be few questions that arise as seen below ? Whether the recapitalization would be good for the social clubs development in the ache run? ?After borrowing $ 3 meg dollars what would the invasion on the societys debt rating be? ?Whats the seismic disturbance on the partnerships share value would the recapitalization increase the conjunctions share value? ?Whats the impact on the confederacys WACC, an increase or decrease? Would recapitalization increases the EPS of the beau monde? Hypothesisin the beginning capital restructuring due to not having any debt, return on capital and operating income as a percent of sales can be used based on exhibit 2(it is $513,356/$2,429,646= 21%) which is the A to AA localize of investment grade. After recapitalization, the lodges debt rating will conk to a BB/B rating which reflects a higher risk and trim back debt rating that will cause higher yields. According to Exhibit 7s given information, the yield is between BB (12. 753) to B (14. 663) to obtain a cost of debt. Impact on share valueIf the company chooses to buy back the line of descent, the WD will be 22. 89% (3,000,000/13,103,000), the WACC will be 10. 19% (22. 89% (1-40%)*13%+77. 1%*10. 9%). Both 10. 32% and 10. 19% are lower than the WACC before recapitalization, which indicates that after the recapitalization the company will have a lower minimum rate of return for the company that it needs to crystalise on its investments to maintain its wealth. Impact on Voting Control If the company is development the dividend plan to do capital restructuring, there will not be any impact on pick out see.However, if the company is using the stock repurchase plan, it will have an influence on the voting control. The current Wrigley family ownership includes 21% of common shares and 58% of B shares. The kernel numbers of sha res outstanding for Wrigley consists of the sum of the common shares of 189. 8 million and gradation B shares of 42. 641 million (10 votes each), a total of 232,441 million shares. So the company will have 46. 6% ((189. 8*21%+426. 41*58%)/616. 21=46. 6%)voting control before recapitalization.After the recapitalization the voting control will increase to 49% (179. 22-42. 641)*21%+426. 41*58%/ (136. 58+426. 41) =49Based on the above analysis, my suggestion is not to borrow $ 3 billion dollars, or if the company insists in doing a recapitalization I would suggest for them to not borrow as much and to make some investment on assets instead of it all in equity. For the Wrigley Company I think they should nutriment their debt below 50 percent.Because after recapitalization, it will have negative impacts on EPS, debt rating, share value and it has a slightly positive impact on WACC and voting control. The results of impact on EPS analysis shows that EPS will drop from $ 1. 61 to 0. 46 an d, the debt/ assets ratio will be 169% which will increase the companys risks. From a debt rating aspect, after borrowing $ 3 billion dollars, the debt rating of the company will decline from AA/A to BB/B which representation that the company will have a higher interest rate, to a greater extent interest expense and a lower credit rating in the upcoming.This is not good for the companys future development. From a farsighted term prospective, I believe its important that the company be careful in determining whether they should pursue a dividend or stock repurchase strategy. If the company chooses to use the $ 3 billion to pay dividends now, it superpower increase the investors satisfaction in the short run simply once the dividend has been paid, the investor will expect the same amount of dividend in the future and a lower dividend might disappoint investors and that might affect the companys stock monetary value in the future.The stock repurchase is flitting as well, so after the repurchase the ending stock price might drop and it may hurt a potential stark naked investor who made a purchase during the repurchase period. All things considered as long as Wrigley keeps an eye on their long term goals and continues to look at the big picture whilst making good solid financial choices for their company they should be most successful.