For This Project Please Use Excel To Do Your Calculat 004984

For This Project Please Use Excel To Do Your Calculations And Analysi

For this project, please use Excel to do your calculations and analysis and then type a report in MS Word. Your report should clearly and thoroughly answer the eight questions below. The report should be typed double-spaced using a Times New Roman Font, size 12. Please limit your report to no more than 10 pages. Submit your report and Excel file on Blackboard, as well as provide me a hard copy of your report in class. All of this needs to be completed by the listed due date on the syllabus.

Paper For Above instruction

This project requires a comprehensive financial analysis of Wrigley's potential recapitalization strategies, utilizing Excel for calculations and a formal report documenting the findings. The analysis focuses on understanding how different debt and dividend policies influence shares, stock price, weighted average cost of capital (WACC), earnings per share (EPS), and overall company valuation. The insights gained will inform strategic recommendations on whether Wrigley should prioritize paying dividends or repurchasing shares.

Introduction

Corporate financial policy significantly impacts a firm’s value, cost of capital, and shareholder wealth. Wrigley's decision to issue debt and its subsequent use—either to repurchase shares or pay dividends—can influence its stock price, earnings per share, and overall capital structure. This analysis applies Excel-based calculations to predict these effects, evaluates the current WACC, and considers how these strategic choices could alter WACC and EPS, thereby guiding optimal financial policy decisions.

Effects of Debt Issuance and Share Repurchase

Issuing $3 billion of new debt to repurchase shares typically results in a decrease in outstanding shares, potentially increasing the stock price due to reduced supply and enhanced earnings per share (EPS). The repurchase reduces equity base, often leading to increased leverage, which can influence the firm's risk profile and cost of capital. The magnitude of these effects depends on the firm's leverage, market perception, and existing capital structure.

When debt proceeds are used to pay dividends, the company's number of outstanding shares remains unchanged. Dividends provide immediate returns to shareholders but do not impact the number of shares. The stock price may respond positively or negatively depending on investor perception of dividend payments versus growth prospects, and leverage effects are less pronounced compared to share repurchases.

Current WACC Analysis

Calculating Wrigley's pre-recapitalization WACC involves estimating the cost of debt and equity. The cost of debt can be derived from existing debt yields, adjusted for tax considerations. The cost of equity is usually calculated using the Capital Asset Pricing Model (CAPM), considering the firm's beta, risk-free rate, and market risk premium. Combining these, the weighted average reflects the company's current capital structure and risk profile.

Projected WACC Post-Recapitalization

Introducing additional debt increases leverage, which generally lowers WACC up to a certain optimal point due to the tax shield benefits of debt. However, beyond this point, increasing leverage raises financial risk, potentially increasing the cost of equity and WACC. The specific impact depends on how the market perceives the firm's increased debt levels—if viewed positively, WACC may decline; if seen as too risky, it may rise.

EPS Analysis Under Different Scenarios

The current and projected EPS are derived from operating income figures, considering tax effects, interest expenses (if debt is issued), and changes in outstanding shares due to repurchases. Using Excel, these calculations involve determining net income divided by the number of shares outstanding. Debt issuance used for repurchasing shares should elevate EPS due to fewer shares outstanding, while dividends do not alter share count but might influence stock price and investor perception.

Impact of Recapitalization Strategies on EPS

Debt-financed share repurchases typically boost EPS, as earnings are distributed over fewer shares. Conversely, dividend payments do not alter share count but can influence stock price and investor sentiment, indirectly affecting EPS and valuation. The analysis projects EPS under varying operating income levels, illustrating how leverage amplifies earnings per share at different income stages.

Conclusions and Recommendations

Based on calculations and analysis, the optimal strategy for Wrigley hinges on balancing leverage benefits against financial risk. Share repurchases, financed through debt, tend to increase EPS and potentially enhance stock price, attracting investor confidence. However, excessive leverage may escalate risk, increasing WACC and cost of capital. Dividend policy offers immediate shareholder returns but may not maximize EPS growth.

Therefore, a balanced approach—possibly favoring repurchase strategies when market conditions are favorable—may align best with long-term value creation. The decision should be supported by data-driven insights obtained from Excel analysis and visualized through relevant graphs and sensitivity analyses.

References

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