1) What will be the effects of issuing $3 billion of new debt and using the proceeds to repurchase shares on: Wrigley’s outstanding shares? on the price per share of Wrigley’s stock?

1) What will be the effects of issuing $3 billion of new debt and using the proceeds to repurchase shares on: Wrigley’s outstanding shares? on the price per share of Wrigley’s stock?

2) What will be the effects of issuing $3 billion of new debt and using the proceeds to pay a dividend on: Wrigley’s outstanding shares? on the price per share of Wrigley’s stock?

3) What is Wrigley’s current (pre-recapitalization) weighted average cost of capital (WACC)?

4) What would you expect to happen to Wrigley’s WACC if it issued $3 billion in debt and used the proceeds to pay a dividend or to repurchase shares?

5) What will be Wrigley’s current EPS (pre-recapitalization) given the following operating incomes? Assume the following numbers are in millions.

Operating income (EBIT)

-$86

$214

$514

$814

$1,114

$1,414

$1,714

6) What would you expect to happen to Wrigley’s EPS if it issued $3 billion in debt and: used the proceeds to pay a dividend? used the proceeds to repurchase shares? Calculate the potential EPS’s given the following incomes. Assume the numbers are in millions.

Operating income (EBIT)

-$86

$214

$514

$814

$1,114

$1,414

$1,714

Finally, what can you conclude regarding the re-capitalization strategies? Do you recommend Wrigley to pay a dividend or repurchase shares. Used data or graphs to support your recommendation.