Finance and Debt

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Tutorial 2
The Wm. Wrigley, Jr. Company (Part 1)

In the first part of the tutorial, each group will present to the class a succinct and yet comprehensive discussion of the following issues relating to Wrigley. Students who do not belong to any group will be assigned to a group in this tutorial. Intra-group discussions will be facilitated in the second part of the tutorial.

PART A

Question #1: (J1, S1, PA1, PB1)

Looking at the data provided to you in the case, without doing a detailed analysis, do you agree with Blanka Dobrynin’s view that Wrigley is not efficiently financed? Why? Discuss clearly the methods you will use to help you to arrive at your decision.

Question #2: (J2, S2, PA2, PB2)

What could possibly be the benefits of having more debt for Wrigley? You must refer to the literature to support your answer. Normally, company will use debt for constructing their capital structure, which is helping lower total financing cost. Moreover, debt is also have another advantages such as keep profits for company, increase return on equity for current company owner and helps secure tax savings. 1. Cost Reduction

Bragg, Steven M,Books24x7, Inc. (2010). Cost reduction analysis: Tools and strategies. Hoboken, N.J: John Wiley & Sons. Cost reduction is the simplest and easiest for increase profit in long- short term Using debt, companies are contractually liable to make periodic interest payments and return debt principal at maturity. Debt holders are often bear less risk

In the event of company liquidation, debt holder can have the senior claiming rights to company assets, which can use as layer of protection for their investment A safer debt investment required less compensation.

DISADV
Profit Retention
Using debt may get company have many pressure as a result of having to meet interest-payment obligations. Company could get more profits within the company rather than using equity. If using debt, company need to pay only the...
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