Submitted by: Submitted by mrbump69
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Category: Business and Industry
Date Submitted: 08/06/2011 08:23 PM
Wrigleys Case Study
Debt to Capital Ratio = Total Debt / Total Capital
All values are in thousands of dollars
Before $3Billion Loan
Book Value Debt to Capital:
= 489,361 / 1,765,648
= 0.277
Market Value Debt to Capital
= 489,361 / (13,102,643 + 489,361)
= 0.036
After $3Billion Loan
Book Value Debt to Capital:
= 3,489,361 / 4,765,648
= 0.732
Market Value Debt to Capital
= 3,489,361 / (14,302,643 + 3,489,361)
= 0.196
After $3Billion Dividend Paid
Book Value Debt to Capital:
= 3,489,361 / 1,765,648
= 1.976
N.B. Capital figure is comprised of a negative equity amount (1,723,713) plus 3,489,361.
Market Value Debt to Capital (Ex-Div Date)
= 3,489,361 / (11,302,643 + 3,489,361)
= 0.236
This option is not possible as cannot have negative equity
After Share Repurchase
Book Value Debt to Capital:
= 3,489,361 / 1,765,648
= 1.976
N.B. I assumed repurchased shares are held as treasury stock, a negative equity value on the Balance Sheet
Market Value Debt to Capital
= 3,489,361 / (11,302,643 + 3,489,361)
= 0.236
N.B. Assume constant share price before and after repurchase. Shares purchased at Market Value.
Earnings Per Share
Recapitalisation has a negative effect on the Earnings Per Share (EPS) of Wrigleys. If the company were to take on a $3billion recapitalisation and the most likely scenario of constant earnings was to result than EPS would reduce from $1.61 to $0.41 (refer to appendix ..). If the recommended $1.2billion capitalisation was to go ahead, earnings constant, EPS would fall to $1.03. The reduction in EPS is due to the large interest expense caused by the debt issue. A lower EPS would mean .......... to the value of the company (ANDYS REFERENCE). Looking at EPS