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Team 14 - William Wrigley
Team 14 - William Wrigley
COMPANY
Team 14
Constantine Brocoum
Courtney Delia
Stephanie Doherty
David Dubois
Radu Oprea
November 19th, 2009
Difference $ 156.00
Borrow Rate 13%
PVP $ 1,200.00
f. Outstanding Shares
Issuing 3 billion dollars of new debt to pay dividends should not have any effect on the voting
control of the Wrigley family. Using that money to buy back shares will have an effect on the
voting right of the family. When shares are repurchased they are put in the company treasury
and are no longer outstanding. Then the Wrigley family’s percent of outstanding shares would
rise giving them more voting control. They also have 58% if the outstanding shares of the Class B
shares which have a 10 to 1 voting advantage over the common share class. These shares are
not affected by the buyback.
WACC 10.110%
CAPM
Unlevered CAPM = .0486 +.750 (.07) = 10.110%
Levered CAPM = .0486 + 2.025 (.07) = 19.038%
WACC
rD * (1-Tc) * D/V + rE * E/V
Unlevered Levered
Equity Beta 0.750 2.025375
Risk free rate 4.86% 4.86%
Equity Market Risk Premium 7.00% 7.00%
Corporate tax rate (tc) 40.0% 40.0%
re 10.11% 19.038%
rd (net cost of debt) 0.000% 7.800%
debt/equity 0 1.705
Wdebt 0.000 0.630
Wequity 1.000 0.370
debt/equity
Total Market Value of Assets 1.760
Market Value of Debt 3.000
The $3 billion in debt would be a liability which would be broken out as short-term debt, that
which is payable within 12 months, and long term debt, which would be repayable in more than
a year. If the company uses this money to repurchase shares, there would be an offset as there
would be no change on the financial statements as the liabilities and equity would net each
other out and assets would remain unchanged. Therefore, it would not be necessary to include
the cost of debt in the weighted-average cost of capital.
Similarly, if the proceeds were used to pay a dividend it would have a similar effect because they
transaction would have a netted effect. Wrigley’s WACC would remain the same as long as the
Wrigley’s Recapitalization
Appendices