The Wm. Wrigley Jr. Company: Capital Structure Valuation and Cost of Capital Harvard Case Solution & Analysis

In June 2002, the managing director of "active investors" hedge fund is considering the possible benefits of increasing the capitalization of debt Wm. Wrigley Jr. Company. Wrigley was conservatively financed, and the date of the event does not assume any debt. Problems for students are to: • assess the potential changes in the value of re-Levering Wrigley using adjusted present value analysis; • Assessment of impact on the weighted average cost of capital, earnings per share, the credit rating firm, and voting control Wrigley family; • Consider the advantages of dividends or redemption shares as a means of returning cash to shareholders. If the main purpose of teaching is to study the financial implications of changes in the capital structure. The key here is a compromise between the tax benefits of debt and the associated costs in terms of financial difficulties and loss of flexibility. Related issues include signaling to investors, clients, effects (control considerations for the family Wrigley), and the incentives created for directors and managers. Finally, the case gives a comparison of dividends and share repurchases. "Hide
by Robert F. Bruner and Sean Carr Source: Darden School of Business 11 pages. Publication Date: November 15, 2005. Prod. #: UV1373-PDF-ENG

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