Cfa Hershey Chocolate Essay

7129 Words Apr 10th, 2013 29 Pages
Contemporary Issues
GROUP ASSIGNMENT
0BU(ACCOUNTING AND FINANCE)

Leah Mpondela 609-6340-02
Fadzai Gambiza 609-6406-02
Takundwa Muzenda 609-6452-02
Mariam Nantumbwe 210052-01091-010

Question 1
(Group Question) I. It is very evident that one of the main responsibilities that the Hershey Trust Board views their responsibility to be is to the Milton Hershey School. In 1918, Milton Hershey endowed the trust board. The objective of this endowment was to have full support for the Milton Hershey School. Further in March 2002, the Trust Board decided to make a decision that was more in the schools favor, which was making sure that its holdings were less concentrated in Hershey stock. Moreover, the composition of the
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Exhibit TN3: Estimated Weighted Cost of Capital for Hershey and Industry Comparables | Hershey | Wrigley | Nestle | Cadbury Schweppes | Average | WACC | 7.34% | 8.58% | 7.59% | 7.15% | 7.66% | Ke (CAPM) | 7.75% | 8.58% | 8.58% | 8.03% | | Equity($millions) (price × shares outstanding) | 8 455 | 11 135 | 80 399 | 14 296 | | Price per share | $63.0 | $49.5 | $51.9 | $28.5 | | Shares outstanding (millions) | 134.2 | 225.0 | 1 550.6 | 502.5 | |

From the table above the results show that Wrigley is the company which has the highest WACC and it is above average. However, we cannot compare Wrigley to HFC because it is a chewing gum company yet Hershey Foods Corporation is a chocolate and non-chocolate confectionery company and it is also involved with chocolate-related grocery products. Also, HFC is on the top list for companies that manufacture gums and mints. WACC is a company’s important figure which is of use to both the company’s management for the sake of capital budgeting and to the stock market for valuing its stock. WACC is a firm’s required return in total for the entire firm that is why it is used most times for internal purposes by the directors of the company. This is done to control the economic possibility of opportunities to expand and mergers. When a company is studying for a possible investment, projects for investment that

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