Finance and Company Essay Example for Free

Finance and Company EssaySo Wrigley has to top decisions on whether or non to borrow $ 3 gazillion for recapitalization. Question Based on the preceding(prenominal) situation, there are few questions that arise as seen below ? Whether the recapitalization would be good for the phoners development in the long run? ? by and by borrowing $ 3 billion dollars what would the impact on the friendships debt rating be? ?Whats the impact on the telephoners component shelter would the recapitalization increase the phoners deal value? ?Whats the impact on the bon tons WACC, an increase or decrease? Would recapitalization increases the EPS of the company? Hypothesis Before capital restructuring due to not having any debt, return on capital and operating income as a percent of sales potbelly be used based on exhibit 2(it is $513,356/$2,429,646= 21%) which is the A to AA range of investment grade. After recapitalization, the companys debt rating pass on fall to a BB/B ra ting which reflects a higher(prenominal) risk and lower 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 re secure the stock, 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 afterward the recapitalization the company will have a lower minimum rate of return for the company that it inescapably to earn on its investments to maintain its wealth. Impact on Voting Control If the company is using the dividend mean to do capital restructuring, there will not be any impact on vote keep back.However, if the company is using the stock repurchase plan, it will have an influence on the voting control. The up-to-date Wrigley family ownership includes 21% of parking lot shares and 58% of B shares. The total numbers of shares outstanding for Wrigley consists of the sum of the common shares of 189. 8 million and class 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) =49 Based 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 a great deal and to make some investment on assets instead of it all in equity. For the Wrigley Company I infer they should keep 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 and, 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 worsen from AA/A to BB/B which means that the company will have a higher interest rate, much interest expense and a lower credit rating in the future.This is not good for the companys future development. From a long 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 might increase the investors satisfaction in the laconic run but 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 determine in the future.The stock repurchase is temporary as well, so after t he repurchase the ending stock price might drop and it may hurt a potential new 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 sense of smell at the big picture whilst making good solid financial choices for their company they should be to the highest degree successful.