The Blanka Dobrynin's Case

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Introduction The Wrigley case is an interesting examination of capital structuring to determine the adjustments associated with debt management. In this case, Blanka Dobrynin is looking for Wrigley to more efficiently utilize debt in its corporate finance structure and prove that it would be a more economical means to manage finances due to the benefits. Currently, Wrigley has no long-term debt. However, the taking on of $3 billion of long-term debt will have several impacts to debt, assets, market value, outstanding shares, etc. Key Issues The key issues in this case include the recapitalization effects to the rest of the company. The immediate benefits include the value of te tax shield and in turn will have effects on he share price at Wrigley. Taking on $3 billion of long-term debt will also affect the WACC due to the increased risks of Wrigley as the company went from having $0 long-term debt to $3 billion. In addition, the recapitalization and re-purchase of shares will decrease or contract the number of shareholders, which could possible affect the Wrigley Family’s voting ability …show more content…

Analysis: Pre-Cap Post Cap Book Value of Debt 0 3,000,000 Book Value of Equity 1,433,414 1,433,414 Market Value of Debt 0 3,000,000 Market Value of Equity 13,102,642 13,102,642 Pretax Cost of Debt 13.00% 13.00% After-Tax Cost of Debt 7.80% 7.80% Market Value Weights of Debt 0% 19% Equity 100% 81% Unlevered Beta 0.75 0.75 Levered Beta -

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