Market Value of Firm

MV = Stock Price x Common Shares outstanding

Common Shares
Outstanding
56.37
232.44

Stock Price
(mio) MV Pre Debt

New Stock Price =

[(total Debt*Tax rate)/common shares outstanding]+Current S

Total Debt

(mio) Stock Price After Debt

3000

40%

Common Shares
Outstanding
61.53
232.44

Stock Price
MV after Debt

Tax rate

WACC = Wd(1-Td).rd + Ws.rs

Market Value
13,103

10,103

mon shares outstanding]+Current Stock Price

Common Shares
New Stock Price
Outstanding
232.44 $
61.53
Market Value
$

14,303

$ 11,303

WACC (pre-recapitalization)
CAPM Model
Expected return = Risk free rate + Beta (Market risk premium)

Beta

20 yr. Rf

0.75

5.65%

MRP
7%

Expected
return
10.90%

WACC (after-recapitalization)
Levered Beta = Unlevered Beta x (1 + ((1-Tax rate) x (Debt/Equity)))
Beta

Tax Rate

0.75

Debt

40% $ 3,000

Equity
$

11,303

Beta
Levered
0.87

Cost of Equity
re = Rf + B(Rf Rm)
= Rf + Beta*(MRP)
Beta levered
Rf
5.65%
0.87

=/(+)()+/(+)()(1)

11,303 $

rKe (cost of equity)

11.74%
E=
D=
re=
rd=
t=

=.()+.()(1)

Equity

MRP
7%

Debt
3,000

Cost of
Cost of debt Tax rate
equity
11.74%
13%
40%

Equity
Debt
Cost of equity
Cost of debt
Tax rate

WACC
10.91%

$ 11,303
$ 3,000
11.74%
13%
0.4

Before Recapitalization
Assumption
Interest rate on debt
Pre-recap debt
Tax rate

($ in 000, exc EPS)

0%
0
40%
Worst Case
Best Case
Most Likely
(-10%)
(+10%)

Operating Income
Interest Expense
Taxable income
Taxes
Net income
Shares outstanding (mio)
Earnings per share (EPS)

$
$
$
$
$
$
$

479.43
479.43
191.77
287.66
232.44
1.24

$ 527.37
###
$ 527.37
$ 210.95
$ 316.42
###
$
1.36

$
$
$
$
$
$
$

580.11
580.11
232.04
348.06
232.44
1.50

Before Recapitalization
Earnings per share (EPS)

1.24

1.36

1.50

After Recapitalization with dividend payout

Earnings per share (EPS)
$
0.23

0.36

0.49

After Recapitalization with share purchase

Earnings per share (EPS)
$
0.29

0.45

0.62

After Recapitalization with dividend

Assumption
Interest rate on debt
Pre-recap debt
Tax rate

($ in 000, exc EPS)

Operating Income
Interest Expense
Taxable income
Taxes
Net income
Shares outstanding (mio)
Earnings per share (EPS)

13%
3,000
40%
Worst Case (10%)
$
$
$
$
$
$
$

479.43 $
390.00
89.43 $
35.77 $
53.66 $
232.44
0.23 $

481.74

Most
Likely

Best Case
(+10%)

527.37
###
137.37
54.95
82.42
###
0.35

$
$
$
$
$
$
$

10%
528
480
10%

580.11
390.00
190.11
76.04
114.06
232.44
0.49

After Recapitalization with share purchase

Assumption
Interest rate on debt
Pre-recap debt
Tax rate

($ in 000, exc EPS)

Operating Income
Interest Expense
Taxable income
Taxes
Net income
Shares outstanding (mio)
Earnings per share (EPS)

13%
3,000
40%
Worst Case (Most Likely
10%)

Best Case
(+10%)

$
$
$
$
$
$
$

$
$
$
$
$
$
$

479.43
390.00
89.43
35.77
53.66
183.69
0.29

$
$
$
$
$
$

527.37
390.00
137.37
54.95
82.42
###
0.45

580.11
390.00
190.11
76.04
114.06
183.69
0.62

Before Purchase
Shared ownership %
Wrigley
Class B common stock
Common stock

All others

58
21

Total

42
79

100
100

Shares in mio
Wrigley
Class B common stock
Common stock
Total

All others

24.7
39.9
64.6

Total

17.9
149.9
167.8

42.6
189.8
232.4

Votes in mio
Votes per
share
Class B common stock
Common stock
Total

Wrigley
10
1

247.1
39.9
286.9

All others

Total

178.9
149.9
328.9

426.0
189.8
615.8

Votes interest %
Wrigley
Class B common stock
Common stock

Total

40.1%
6.5%

46.6%

All others
29.1%
24.3%

53.4%

Total
69.2%
30.8%

100%

Wrigley
0.0
0.0
0.0

After Purchase
Shared ownership %
All
Wrigley
Total
others
58%
42%
100%
28%
72%
100%
Shares in mio
All
Total
others
0.0
0.0
48.8 48.8
48.8 48.8

Wrigley All others Total

24.7
39.9
64.6

17.9
101.1
119.0

42.6
141
183.6

Votes in mio
All
Wrigley
Total
others
247.1
178.9
426.0
39.9
101.1
141.0
286.9
280.1
567.0
Votes interest %
All
Wrigley
Total
others
43.6% 31.6% 75.1%
7.0% 17.8% 24.9%

50.6% 49.4% 100%

Impact on Share Value

Before Recapitalization
Market Value Equity
# of outstanding shares
Add cash received
share price
Value to shareholders

13.1 bio
232.441 mio
NA
$56.36
$56.36

After
After RecapitalizationRecapitalizationDividend
Repurchase
11.3 bio
11.3 bio
232.441 mio
183.677 mio
3 bio
0
$48.61
$61.52
$61.52
$61.52

Share Repurchase Calculation

New Debt
3 bio

New Price
MV Eq + PV Debt Tax Shield
13.1 bio + (3 bio x 40%) = 1.43 bio
1.43 B/232.441 M = $61.52 per share

0.0487646294
Share Repurchased
3 B/ $61.52 =48.764 M