Essay about Wm. Wrigley Jr, Company Capital Structure

1915 Words Sep 10th, 2013 8 Pages
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 per Share 3
Voting Control 3
EBIT Interest Coverage Ratio 4
Flexibility 4
3.0 Recommendation5
4.0 Reference List7
5.0 Appendix
Appendix 18
Appendix 29
Appendix 310
Appendix 412
Appendix 513
Appendix 614
Appendix 715
Appendix 816
…show more content…
It represents that the firm is able to pay its debt expense. However, other competitors have over 3 or even 11 (Refer to Appendix 10). It represents that the Wrigley might have relatively weak cash flow. Also, the credit rate of Wrigley Company will drop from AA to between BB and B. In addition, if the firm wants to pay dividend to its shareholders or repurchase shares, repurchase share will be more a flexible strategy for Wrigley. Dividend payments will disturb financial flexibility due to the fact that it is significant fixed cost (Soter, 1996). Repurchases are paid out of temporary cash flows whereas dividends are paid out of sustainable cash flows (Murali, Clifford P & Michael S, 2000).

3. Recommendation Based on the analysis of this report, the Wrigley with $3 billion debts will be inappropriate approach due to the cost of debt. With the benefit of the tax shield can push the market value of the firm, however, it put the Wrigley a risky financial position, such as, dropped company credit ratio, high interest expense and ). Therefore, we recommend that $2 billion debts will be reasonable for the Wrigley further investment as minimize WACC which represents optimal capital structure, according to M&M method. Tax shield will be effect by lower debt issuing and also the interest expense, which was $390 million, can reduce to $200 million as well as lead to cost of debts dropping.
As main cause of credit

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